Illustrate the order quantity-reorder point and safety stock

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Inventory Management

A local service station is open 7 days per week, 365 days per year. Sales of 10W40 grade premium oil average 18 cans per day. Inventory holding costs are $0.55 per can per year. Ordering costs are $8 per order. Lead time is two weeks. Backorders are not practical – motorists drive away. The boss is concerned about inventory because demand really varies. The standard deviation of demand was determined from a data sample to be 6.15 cans per day. The manager wants a 94% service level.

a. Illustrate the order quantity, reorder point, safety stock and lead time on a diagram where the Y-axis represents the number of oil cans and the x-axis represents the time. What is the maximum possible inventory in the system at any point of time?

Reference no: EM131729244

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