Reference no: EM131619295

Question: Consider the following inventory system:

(a) Whenever the inventory level falls to or below 10 units, an order is placed. Only one order can be outstanding at a time.

(b) The size of each order is Q; Maintaining an inventory costs $0.50 per day per item in inventory. Placing an order incurs a fixed cost, $10.00.

(c) Lead time is distributed in accordance with a discrete uniform distribution between zero and 5 days.

(d) If a demand occurs during a period when the inventory level is zero, the sale is lost at a cost of $2.00 per unit.

(e) The number of customers each day is given by the following distribution:

Number of Customers per day                Probability

                      1                                   0.23

                      2                                   0.41

                      3                                   0.22

                      4                                   0.14

(f) The demand on the part of each customer is Poisson distributed with a mean of 3 units.

(g) For simplicity, assume that an demands occur at noon and that all orders are placed immediately thereafter. Assume further that orders are received at 5:00 P.M., or after the demar.d that occurred on that day. Consider the poi icy having Q = 20. Make five independent replications, each of length 100 days, and compute a 90% confidence interval for long-run mean daily cost. Investigate the effect of initial inventory level and existence of an outstanding order on the estimate of mean daily cost. Begin with an initial inventory of Q + I 0 and no outs tanding orders.