Question: Weekly demand for an item varies in a retail outlet, with an average of 200 units and standard deviation of 16 units. This item is purchased from a wholesaler at a cost of $12.50 per unit. The supply lead time is 4 weeks. Placing an order costs $50, and the inventory carrying rate per year is 20 percent of the item’s cost. The store operates 5 days per week, 50 weeks per year.

1. What is the optimal order quantity for this item?
2. How many units of the item should be maintained as safety stock for 99 percent protection against stockouts during an order cycle?
3. If supply lead times can be reduced to two weeks, what is the percent reduction in the number of units maintained as safety stock for the same 99 percent stockout protection?
4. If through appropriate sales promotions, the demand variability is reduced so that the standard deviation of weekly demand is 8 units instead of 16, what is the percent reduction (compared to that in part "b") in the number of units maintained as safety stock for the same 99 percent stockout protection?

Price: $2.99

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Deliverable: Word Document