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The annual demand for a product is 14,400 units. The weekly demand is 277 units with a standard deviation of 80 units. The cost to place an order is $28.00, and the time from ordering to receipt is eight weeks. The annual inventory carrying cost is $0.10 per unit.
a. Find the reorder point necessary to provide a 95 percent service probability. (Use Excel's NORM.S.INV() function to find the z value. Round z value to 2 decimal places.)
b. Suppose the production manager is asked to reduce the safety stock of this item by 45 percent. If she does so, what will the new service probability be? (Use Excel's NORM.S.DIST() function to find the correct probability for your computed z value. Round "z" value to 2 decimal places and final answer to 1 decimal place.)
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