# Question

Cyber Chemicals uses liquid nitrogen on a regular basis. Average daily demand is 178 gallons with a standard deviation of 45. Due to a substantial ordering cost, which is estimated to be $58 per order (no matter the quantity in the order), Cyber currently orders from its supplier on a weekly basis. Cyber also incurs holding costs on its inventory. Cyber recognizes that its inventory is lowest at the end of the week but prefers a more realistic estimate of its average inventory. In particular, Cyber estimates its average inventory to be its average end-of-week inventory plus half of its average order quantity. The holding cost Cyber incurs on that average inventory is $0.08 per gallon per week. Cyber's supplier delivers in less than a day. Assume 52 weeks per year, five days per week.

a. Cyber wishes to maintain a 99.9 percent in-stock probability. If it does so, what is Cyber's annual inventory holding cost?

b. What is Cyber's annual ordering cost?

c. Should Cyber consider ordering every two weeks?

a. Cyber wishes to maintain a 99.9 percent in-stock probability. If it does so, what is Cyber's annual inventory holding cost?

b. What is Cyber's annual ordering cost?

c. Should Cyber consider ordering every two weeks?

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