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Suppose that your firm uses a Periodic Review System and operated 52 weeks per year. One of the items has following characteristics:
Demand = 20,000 units/year
Ordering cost = $40/order
Holding cost = $2/unit/year
Lead Time = 2 weeks
Cycle Service Level = 95%
Demand is normally distributed with a standard deviation of weekly demand of 100 units. Current on-hand inventory is 1040 units with no scheduled receipts or backorders.
1. Calculate the P that gives approximately the same number of orders per year as the EOQ. Round down your answer to the nearest week.
2. Find the SS and T corresponding to the 95% service level.
3. Compare SS for the Q and the P system. Which one has a bigger SS. Explain why.
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