Service Management: Operations, Strategy, Information Technology 8th Edition by James Fitzsimmons,Mona Fitzsimmons,Sanjeev Bordoloi

Exercise 30

Deep Six Seafood, a restaurant that is open 360 days a year, specializes in fresh Maine lobsters at a cost of $10 each. Air freight charges have increased significantly, and it now costs Deep Six $48 to place an order. Because the lobsters are shipped live in a saltwater tub, the order cost is not affected by order sizes. The cost to keep a lobster alive until needed runs about $0.02 per day. The demand for lobsters during the 1-day lead time is as follows:

a. Deep Six would like to reconsider its order size. What would you recommend as an EOQ ?
b. The Maine distributor is willing to give Deep Six a $0.50 discount on each lobster if orders are placed in lots of 360 each. Should Deep Six accept this offer?
c. If Deep Six insists on maintaining a safety stock of 2 lobsters, what is the service level?