Sheri is a car distributor in a rural area. She has customers that own relatively old cars. To maintain good customer service, Sheri keeps a small inventory of spare parts for old-models cars. One item is brake boosters. Is a slow-moving item, and therefore she uses the periodic review policy with a review period of two months. The annual demand for booster sets has a normal distribution with mean of 15 and standard deviation of 5. Because this item is out of production, delivery lead time is five months. The cost of a set of boosters is $500. Sheri places high value on maintaining customer satisfaction. Therefore, she considers goodwill to be crucial, and estimates the shortage cost to be $5000. Shortages are backlogged, and annual inventory holding cost is 20%. a. Find the optimal target inventory b. Find the implied service level for policy 1 and policy 2 c. Find the safety stock for a set of brake boosters. d. Find the expected annual cost of the periodic review policy e. Suppose a continuous review policy is used. Find the safety stock.
Sheri is a car distributor in a rural area. She has customers that own relatively old cars. To
maintain good customer service, Sheri keeps a small inventory of spare parts for old-models
cars. One item is brake boosters. Is a slow-moving item, and therefore she uses the periodic
review policy with a review period of two months. The annual demand for booster sets has a
normal distribution with mean of 15 and standard deviation of 5. Because this item is out of
production, delivery lead time is five months. The cost of a set of boosters is $500. Sheri places
high value on maintaining customer satisfaction. Therefore, she considers
and estimates the shortage cost to be $5000. Shortages are backlogged, and annual inventory
holding cost is 20%.
a. Find the optimal target inventory
b. Find the implied service level for policy 1 and policy 2
c. Find the safety stock for a set of brake boosters.
d. Find the expected annual cost of the periodic review policy
e. Suppose a continuous review policy is used. Find the safety stock.
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