Regional distributor purchases discontinued appliances

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Reference no: EM132232790

A regional distributor purchases discontinued appliances from various suppliers and then sells them on demand to retailers in the region. The distributor operates 5 days per week, 52 weeks per year. Only when it is open for business can orders be received. Management wants to reevaluate its current inventory policy, which calls for order quantities of 330 counter-top mixers. The following data are estimated for the mixer:

Average daily demand (d) = 200 mixers Standard deviation of daily demand (σd) = 60 mixers Lead time (L) = 4 days Holding cost (H) = $10/unit/year Ordering cost (S) = $40/order The distributor uses a continuous review (Q) system.

Assuming a cycle service level of 95%, what would be the safety stock given the data presented above? Will it change if the order quantity was changed?

Is an order quantity of 330 units economical? If not what should it be?

If in addition to the previously provided data, if the distributor came to know that the lead time was not constant- and in fact was varying with a standard deviation of (σL) of 2 days in addition to the variation in daily rate of demand, what would be the new safety stock for a cycle service level (C.S. L) of 95%?

If the distributor ordered the economic order quantity and decided to fulfil 99% of the demand rather than just 95% of the demand during lead time, what would be the increase in total annual inventory costs?

Reference no: EM132232790

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