The Farmer’s Wife is a country store specializing in knick-knacks suitable for a farm-house decor. One item experiencing a considerable buying frenzy is a miniature Holstein cow. Average weekly demand is 30 cows, with a standard deviation of 5 cows. The cost to place a replenishment order is $15 and the holding coast is $0.75/cow/year. The supplier, however, is in China. The lead time for new orders is 8 weeks, with a standard deviation of 2 weeks. The Farmers Wife, which is open only 50 weeks a year, wants to develop a continuous review inventory system for this item with a cycle-service level of 90 percent.
a. Specify the continuous review system for the cows. Explain how it would work in practice.
b. What is the total annual cost for the system you developed?