You run a company that is determining its order quantity and re-order point for one of its products where the demand rate is a random variable and it operates under a continuous review policy. In addition, both the order quantity and re-order point can take continuous values. Annual demand for the product is normally distributed with mean 3600 and standard deviation 300. The fixed order cost of the product is $7500 and the monthly holding costs are $15 per product. The product is backlogged at a cost of $250 per product that is backlogged. Finally, lead time for the product is 2 months. (a) Determine the mean and the standard deviation of lead time demand. (b) Determine the optimal (Q, R) pair. If you are using the table from class slides, you may use the closest listed value to the one under consideration in your calculation. You may stop the method to solve for (Q, R) when consectutive Q values or R values are within .5 of one another. (c)Determine the reorder point if the company decides to re-order the EOQ and it wishes to maintain a Type 2 service level with β = .98.
You run a company that is determining its order quantity and re-order point
for one of its products where the demand rate is a random variable and it operates under a
continuous review policy. In addition, both the order quantity and re-order point can take
continuous values. Annual demand for the product is
and standard deviation 300. The fixed order cost of the product is $7500 and the monthly
holding costs are $15 per product. The product is backlogged at a cost of $250 per product
that is backlogged. Finally, lead time for the product is 2 months.
(a) Determine the mean and the standard deviation of lead time demand.
(b) Determine the optimal (Q, R) pair. If you are using the table from class slides, you
may use the closest listed value to the one under consideration in your calculation. You may
stop the method to solve for (Q, R) when consectutive Q values or R values are within .5 of
one another.
(c)Determine the reorder point if the company decides to re-order
the EOQ and it wishes to maintain a Type 2 service level with β = .98.
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