Essay
An auto parts store (operates 350 days per year) in a major metropolitan area reviews its inventory on a periodic basis using a computer system. It is experiencing some problems with a tune-up kit. The kit is bought from PRC Tires, a U.S. manufacturer. The annual demand for these kits is 10,500. The cost to carry a kit in the inventory for one year is $4.90, and the cost to place a replenishment order is $17 per order. Replenishment lead time is 4 days. The standard deviation of daily demand is 7 kits.
a.What should be the review period for these tune-up kits?
b.What is the optimal replenishment level without safety stock?
c.What is the optimal replenishment level with safety stock, assuming a 95 percent service level?
Correct Answer:
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a.EOQ = Q* = Sq. root of [2(10,500)(17)/...View Answer
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