What is in-stock probability with current base stock level

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Reference no: EM132287853

A Long Time Ago in a Galaxy Far Far Away…

There is a Galactic Empire that manufactures droids (robots) to be “used” in combat. The Empire adopts a weekly base stock policy to replenish its droid inventory. Weekly demand is normally distributed with mean 60,000 units with standard deviation 10,000 units. The Empire does not incur ordering costs.

Each droid costs $20,000 and the inventory holding cost rate is 26% per dollar per year. The droids are manufactured in a central factory and it takes 8 weeks to transport them to a remote corner of galaxy where they will be “consumed”. The Empire currently adopts 600,000 units as the base stock level.

a. What is expected pipeline inventory with the current base stock level?

b. What is the in-stock probability with the current base stock level? Answer in probability (i.e. from 0 to 1) to four decimal points.

c. What base stock level should the Empire use to ensure 99.5% in-stock probability while minimizing inventory related costs (holding and backorder)

d. The Empire incurs backorder penalty of $10,000 per week for each unit of unsatisfied demand. What is the optimal base stock level to minimize inventory management costs? Assume that there are 52 weeks in a year because the Empire follows the Gregorian calendar for whatever reason.

Reference no: EM132287853

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