MassPC Inc. produces a 4- week supply of its PC Pal model when stock on hand drops to 500 units. It takes 1 week to produce a batch. Factory orders average 400 units per week, and standard deviation of forecast errors is estimated at 125 units.
a. What level of customer service is MassPC providing to its distributors in terms of stock availability?
b. MassPC wants to improve customer service to 80%, 90%, 95%, and 99%. How will such improve-ments affect the company’s reorder policy and its annual costs?