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Question
The annual demand for a product is 15,600 units. The weekly demand is 300 units with a standard deviation of 90 units. The cost to place an order is $31.20, and the time from ordering to receipt is four weeks. The annual inventory carrying cost is $0.10 per unit.
1. Find the reorder point necessary to provide a 98 percent service probability.
2. Suppose the production manager is asked to reduce the safety stock of this item by 50 percent. If she does so, what will the new service probability be?
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