Service Management 7th Edition by James Fitzsimmons, Mona Fitzsimmons

Exercise 11

The local distributor for Macho Heavy Beer is reconsidering its inventory policy now that only kegs will be sold. The sales forecast for next year (200 days) is 600 kegs. The cost to store a keg of Macho in a refrigerated warehouse is approximately $3 per year. Placing an order with the factory costs about $4. The demand for Macho during the 1-day lead time is

a. Recommend an EOQ for Macho Heavy Beer.
b. If orders are placed in carload lots of 200 kegs, the brewery is willing to give the local distributor a $0.25 discount on the wholesale price of each keg. Based on analysis of total variable inventory costs, is this offer attractive?
c. What is the recommended safety stock if Macho decides on an 85 percent service level?