Reference no: EM131463379

Question: After taking a production seminar, Al Weiss, the owner of Weiss's paint store mentioned in Problem 14, decides that his stock-out cost of $10 may not be very accurate and switches to a service level model. He decides to set his lot size by the EOQ formula and determines his reorder point so that there is no stock-out in 90 percent of the order cycles.

a. Find the resulting (Q, R) values.

b. Suppose that, unfortunately, he really wanted to satisfy 90 percent of his demands (that is, achieve a 90 percent fill rate). What fill rate did he actually achieve from the policy determined in part (a)?

Problem: Weiss's paint store uses a (Q, R) inventory system to control its stock levels. For a particularly popular white latex paint, historical data show that the distribution of monthly demand is approximately normal, with mean 28 and standard deviation 8. Replenishment lead time for this paint is about 14 weeks. Each can of paint costs the store $6. Although excess demands are back-ordered, the store owner estimates that unfilled demands cost about $10 each in bookkeeping and loss-of-goodwill costs. Fixed costs of replenishment are $15 per order, and holding costs are based on a 30 percent annual rate of interest.

a. What are the optimal lot sizes and reorder points for this brand of paint?

b. What is the optimal safety stock for this paint?