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Problem
Tiger Treasures, Inc. is an online retailer selling AU souvenirs. Its best-selling SKU is a blinking button that flashes the phrase "AU #1" in orange and blue lights. The company buys the product from a supplier in Memphis who uses FedEx for guaranteed delivery within 24 hours of being ordered. It costs $25 to place an order, and the button is held in inventory at a cost of $10 each. Annual demand is 190,384 buttons/year, and the company operates 24/7/365. The lead time is constant at 1 day, but the demand is variable with a daily standard deviation of 268.9. The company's service level target is 97.5%, and inventory holding costs are estimated to be 15% per year.
I. What would the Safety Stock requirement be for a Periodic Review system with a 97.5% service level target and a 7-day review interval?
II. What is the Target Inventory Level (Order-up-to level) for a Periodic Review system with a 97.5% service level target and a 7-day review interval?
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