Reference no: EM132730146

A fishing gear supply shop uses a secret blend of ingredients to make its infamous fish bait. One of the ingredients, we'll call it X for proprietary reasons, is the major component in the mixture. The owner thus uses continuous review system to manage its inventory level. X is ordered in 55-gallon barrels from out of state and is used at the rate of 1050 barrels per year. Each order that is placed with the supplier costs $50 to process. Storage space is at a premium on the shop floor and out in the yard near Provincetown harbor, so their annual cost to hold inventory is $40 per barrel. The shop operates 355 days a year. Since bait mixing process is handled by a highly automated equipment, the day to day consumption rate for X is very steady (i.e. daily demand rate is constant). The owner's brother-in-law provides transportation services and his record has been less than stellar, so order lead time has averaged 6 days with a standard deviation of 2. Stopping the process would be disastrous, so the plant manager has set a 99% service level on the reorder point.

a. How many barrels of X the owner should order each time?

b. What is the reorder point for X?