Estimate the optimal order quantity

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Reference no: EM13100410

Flextora Inc sells a product called SKU561. This is a seasonal product and only sold in the spring. Seasonal demand is normally distributed with mean 10,000 and standard deviation 1,000. The selling price is $80 per unit and the purchase cost is $20/unit. All unsold units are destroyed at no cost.
(a) What is the optimal order quantity?
(b) What is the expected fill rate based on your answer in part a?

Suppose that Joe, and APICS certified analyst, informs that he has heard about a new form that in the event of a stock?out, guarantees to provide overnight as many additional units as needed for a premium of $10/unit. Joe also believes that providing a $10 discount on the purchase (in case of a need for overnight delivery) will assure that no customers are lost.
(c) Under this scenario, how many units should be ordered?
(d) What is the probability of stock?out under this scenario?
(e) Should Flextora Inc implement the policy proposed by Joe?

Reference no: EM13100410

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