What is the probability of stock-out

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Watson’s Office Supply stocks a special type of bond paper. The average rate of demand for the paper is twenty packages per week with a standard deviation of ten packages. It costs $30 to place and receive an order for this type of paper and $.45 to carry a package of paper in inventory for a year. a) What is the EOQ for this type of paper? b) If the lead time for paper is constant at 2 weeks, and Mr.Watson uses a reorder point of fifty packages, what is the probability of a stock-out? (Assume that the demand during the lead time is normally distributed.) c) What reorder point should Mr.Watson use if he wishes the stock-out probability to be no more than 2%? d) Suppose that Watson’s Office Supply decides to switch to a fixed interval period review policy for this bond paper, ordering every 16 weeks. Determine what stocking level and safety stock will give a 2% stock-out probability. (Assume that the demand during the lead time and review period is normally distributed.) e) Given the EOQ calculated earlier, what advice would you give Watson about his order period?

Reference no: EM132294841

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