An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin

Exercise 14

Foster Drugs, Inc., handles a variety of health and beauty aid product. A particular hair conditioner product costs Hosier Drugs $2.95 per unit. The annual holding cost 20%. An order-quantity, reorder point inventory model recommends an order quantity 300 units per order.
a. Lead time is one week and the lead-time demand is normally distributed with a mean or 150 units and a standard deviation of 40 units. What is the reorder points if the firm is willing to tolerate a 1% chance stockout on any one cycle?
b. What safety stock and annual safety stock costs are associated with your recommendation in part (a)?
c. The order-quantity, reorder point model require a continuous review system. Management is considering making a transition to a periodic review system in an attempt to coordinate ordering for many of its products. The demand during the proposed two-week review period and the one-week lead-lime period is normally distributed with a mean of 450 units and a standard deviation of 70 units. What is the recommended replenishment level for this periodic review system if the firm is willing to tolerate the same 1% chance of stockout associated will, any replenishment decision?
d. What safety stock and annual safety costs are associated with your recommendation in part (c)?
e. Compare your answer to parts (b) and (d). The company is seriously considering the periodic review system. Would you support this decision? Explain.
f. Would you tend to favor the continuous in the preceding example sold for $295 per unit. Explain