Reference no: EM132629715
Kristen orders paper take-out bags with her logo printed on them.
Kristen decides to optimize the inventory policy for take-out bags using what she learned from the OM class. Daily demand for take-out bags is normally distributed with a mean of 75 bags and a standard deviation of 25 bags. Kristen's printer charges her $10 per order for print setup independent of order size. Bags are printed in batches of 100, and priced at $5 per batch (i.e., 5 cents each bag). It takes 5 days for an order to be printed and delivered. The only holding cost is the opportunity cost of capital, which is estimated to be 30% per year. Assume 360 days per year.
a) What is the optimal order quantity per order for Kristen?
b) If Kristen wants to make sure the bags do not run out with 99% probability during the order lead time, what is her optimal reorder point?
c) Using the above ordering strategy, on average how often will Kristen's bag inventory run out (circle one)? (If Kristen stocks out for multiple consecutive days, it counts as one stockout incident.)
(1) Once every 100 days (2) Once every 400 days
(3) Once every 3 years (4) Once every 22 years
d) How long on average does each bag spend in Kristen's kitchen?