Ross White’s machine shop uses 2500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or10% of the unit cost) and the ordering cost is $18.75. There are 250 working days per year. Upon hearing that Ross White is considering the producing the brackets in-house, the supplier has notified Ross that the purchase price would drop from $15 per bracket to $14.50 per bracket if Ross purchase the brackets in lots of 1000. After analyzing the cost of the various options for obtaining the brackets, Ross White recognizes that although he knows the lead time is 2 days, the average daily demand usually varies. Ross has kept careful records and has determined that the average daily demand is normally distributed with a standard deviation of 2.5 units. If Ross would like to maintain a service level of 90 %, what should his re-order point be?
Ross White’s machine shop uses 2500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or10% of the unit cost) and the ordering cost is $18.75. There are 250 working days per year. Upon hearing that Ross White is considering the producing the brackets in-house, the supplier has notified Ross that the purchase price would drop from $15 per bracket to $14.50 per bracket if Ross purchase the brackets in lots of 1000.
After analyzing the cost of the various options for obtaining the brackets, Ross White recognizes that although he knows the lead time is 2 days, the average daily demand usually varies. Ross has kept careful records and has determined that the average daily demand is
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