Ray's Satellite Emporium wishes to determine the best order sizefor its best-selling satellite dish.Ray has estimated that weeklydemand for this model to be 25 units with a standard deviation of 5units.His cost to carry one unit is $50 per year and the cost ofplacing an order with his supplier is $25.He's open 52 weeks ayear.Assume weekly demand is normally distributed.
(4 pts each)
a) What is Ray’s economic order quantity in this situation?(Hint: Use average annual demand in EOQ formula)
b) The lead-time for ordering from this supplier is 3 weeks.What are the mean and standard deviation of demand during leadtime?
c) Ray desires an in-stock service rate of 95%. How many unitsshould Ray have on-hand at the time he places an order? How manyunits of safety stock will he carry?
d) If Ray increases his in-stock service rate to 99% how manyunits of safety stock will have to carry?
e)Ray is able to negotiate a lead-time of 2 weeks with thesupplier. Now what safety stock will he have to carry with 95% and99% in-stock service levels?
f) Suppose Ray is able to reduce the standard deviation ofdemand (through a combination of lowered prices and loyaltyschemes) to 3 units. How will this impact his safety stock assuminglead time of 3 weeks with a service level of 95%?
