Managing Supply Chain and Operations 1st Edition by Thomas Foster ,Scott Sampson,Cynthia Wallin,Scott Webb

Exercise 15

A part is demanded at the rate of 400 per week. The part is purchased from a supplier in Asia, and the lead time is five weeks. The standard deviation of demand during the lead time is 50 units. If the company wants to have a service level of 97.5%, how much safety stock should the company hold for this part? If the opportunity cost of capital for the company is estimated to be 20% and the part costs $75, what is the annualized cost of the safety stock required to achieve the desired service level?