Office-Co sells secretarial chairs. Annual demand for the chairs is normally distributed with a mean of 1040 chairs and a standard deviation of 51 chairs. Office-Co checks inventory at the end of each week (typically a Saturday evening) and if necessary, puts in an order to its supplier. It costs $100 to place an order and the lead time to receive an order is two weeks. Office-Co estimates that if a customer wants a chair when the company is out-of-stock, the loss-of-goodwill cost is $50 per chair. Each chair costs $60 and is sold for $100. The holding cost of the chairs is based on a 30% annual interest rate. (There are 52 weeks in a year)

(a) Discuss why it is appropriate to use an (s, S) inventory control policy in this case. Under

what condition would you use a basestock (order-up-to) policy?

(b) Using the (Q, R) solution, determine the appropriate values of the (s, S) inventory control policy. Use the EOQ value for the ordering quantity (i.e., no need for iterations).

(c) Suppose the company wants to have, on average, at most eight weeks with stockouts every year. Would the above-calculated policy satisfy this requirement? Justify your answer with calculations.

Answer rating: 100% (QA)

a It is appropriate to use an s S inventory control policy in this case because the company wants to ... View the full answer