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What is your average inventory?
Scenario:
You manage inventory for your company and use a continuous review inventory system to control reordering items for stock. Your company is open for business 300 days per year. One of your most important items experiences demand of 20 units per day, normally distributed with a standard deviation of 3 units per day. You experience a lead time on orders from your supplier of six days with a standard deviation of two days. If you order 1,000 units or less, you pay the supplier $5.00 per unit. Orders of 1,000 or more can be bought at a unit price of $4.75. Your ordering cost is $50. Your inventory carrying cost is 20 percent. You have established a service level policy of 97.5 percent on this item.
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