1. (Inventory Policy) Please determine an optimalinventory policy for following demand and cost parameters.

• Planninghorizon                          One year
• Expected total annual demand 560,275 Units
• Fixed ordering cost                     700 USD
• Holding cost                                 20% of product cost
• Productcost                                  20 USD per unit
• Retailprice                                    38 USD per unit
• Salvage value                               15 USD per unit
• Lead time(fixed)                          3 days

1. What is the optimal order size Q?
2. Assuming the daily demand is constant and known, what is thereorder point?
3. Assuming the daily demand is uncertain with the standarddeviation of 200, what is the optimal service level during the leadtime?
4. In continuation of problem 3, then, what is the optimal reorderpoint and the safety stock? (note: this problem does not give anarbitrary target service level, you either need to assume your ownor need to find out what is the optimal service level that willminimize the total cost)[1].
5. * If the planner totally disregards the uncertain nature of thedaily demand and do not prepare the safety stock at all, then whatwill be the service level?
6. * During one week in November, due to the shipper’s company hada driver work strike, the “used to be very accurate and constant”lead time experienced a delay by additional two days. Of course,the inventory planner did not foresee this. In this case, with thetypical safety stock level that is calculated in problem 4, howmany percentage points will be dropping in the service level (dueto the delay)? (hint: with the increased lead time, whatchanged?)

[1] Preferably, I hope that you can come up with the total costminimizing service level based on the cost parameters provided. Butif you have no clue, you can just assign your own arbitrary servicelevel. It won’t impact following questions no matter what servicelevel you choose.