The He's Hobby Shop carries a line of radio-controlled model racing cars. The daily demand rate is 100. Unit inventory holding cost is estimated at $0.90/year. The shop purchases the model cars from one supplier. It is estimated that the ordering cost is $100 per order. The lead time is 10 working days. Ms. He decides to use a Reorder Point System to control the inventory of the model cars. Assume 300 working days per year.

a) Suppose the company is currently ordering 2000 cars each time, what is the annual total ordering and holding cost?

b) How much to order to minimize the total ordering and holding cost?

C) As compared to the original ordering quantity of 2000, How much does Ms. He saves each year with the new optimal ordering quantity?

d) Due to an unstable economy, the demand becomes uncertain. The average daily demand for the model cars is 100 with a standard deviation of 30.

1) Suppose the firm decides to use a reorder point system, keeping all other parameter values unchanged. What should be the reorder point if Ms. He wants to achieve a 90% service level?

2) Suppose the firm decides to use a base-stock system, keeping all other parameter values unchanged. Calculate the length of the review period that gives approximately the same number of orders per year as the reorder point system. Find the target inventory level that provides 95% service level

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