A firm faces an average demand of 12 units per day with a standard deviation of 6
Fantastic news! We've Found the answer you've been seeking!
Question:
A firm faces an average demand of 12 units per day with a standard deviation of 6 per day for its most popular product PXYZ. To make PXYZ, the firm buys a commodity XYZ for $40 per unit (there is also a fixed cost of $400 whenever an order for XYZ is placed). The firm uses a 20 percent interest rate for holding inventory. The supplier of commodity XYZ has a 16 days leadtime.
Whenever a customer demands a unit of PXYZ, the firm takes a unit of XYZ, and applies the production process P fairly quickly (assume the production process takes almost no time for our purposes) and produces a unit of PXYZ. If the firm does not have any units of XYZ, it has to backorder the customer demand and reimburses its customer $1/day for each day of delay.
- Compute the optimal inventory policy the firm should use for XYZ
- Suppose the supplier reduces the replenishment lead time for XYZ from 16 days to 9 days. How much in annual savings in holding costs will the firm obtain due to this improvement?
Related Book For
Posted Date: