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Case Western Reserve Optimal Order Quantity Safety Stock Reorder Point Question

Case Western Reserve Optimal Order Quantity Safety Stock Reorder Point Question

Question Description

I’m working on a supply chain multi-part question and need guidance to help me understand better.

Problem 6. (21 points) You are the owner of www.spicebarn.com, an online retailer of hip, hard-to-find spices. Consider your inventory of saffron, a spice nearly worth its weight in gold. You order saffron from an overseas supplier with a shipping lead time of four weeks. Average weekly demand is normally distributed with a mean of 300 ounces and a standard deviation of 100 ounces. The holding cost per ounce per week is $0.25, and the ordering cost is $600. You wish to minimize costs while maintaining a 90% service level.

1.(5 points) How much should you order at a time?

2.(4 points) To satisfy service level of 90%, how much safety stock do you need to carry?

3. (3 points) How much does carrying the safety stock in part 2 costs you weekly?

4.(3 points) At what inventory level would you place your order?

5.(6 points) On average, what are the weekly holding and ordering costs of the optimal policy? (Keep two digits after the decimal point.)

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