a. What are the order-up-to level and the order quantity for these items? Audrey thinks that a lead time service level of 70 percent is adequate as large orders are passed to the supplier and the requisitioner is willing to wait two weeks.

b. In the case of the heavyweight brushed cotton cap, the supplier is offering the following quantity discount.

Quantity Range                     Unit Price

72-143 ..................................    $8.75

144-239 ................................    $7.95

240-575 ................................    $750

If holding cost rate is 12 percent per year and setup cost is $50 per setup, how many units should Audrey order?

Audrey Blondeau is in charge of the promotional (gift) items of Cameco, one of the largest uranium producers in the world. Promotional items include mugs and T-shirts printed with the company logo. Located in the investor, corporate, and government relations department, Audrey receives requests for gift items from supervisors and employees of Cameco for special events and also from local charities for donations of gifts.

Audrey had no system in place for receiving orders from the employees or for ordering the approximately 190 items her office carries. Most items are purchased from Impact Marketing (http://www.impactmarketing.ca), which will inscribe the company logo on the items. The reasons for carrying inventory are that the supplier requires a minimum order quantity, a setup charge (depending on the type of item), and a lead time of two weeks for producing an item. Large orders from supervisors, over the minimum, are passed directly to the supplier for production. The supplier needs artwork approval for new items. The donation requests have to be approved for a budget and are met mostly from slow-moving stocked items. To improve efficiency, Audrey created a simple employee request form and reduced the number of items she carried to 40. She also added 11 new items to replace old models of popular items such as mugs, bottles, and bags. Audrey is also trying to make her job easier by establishing a fixed-interval system with order interval of two months for the promotional items. She has collected the demand (from Cameco employees) for the promotional items during the last few months and has estimated the average monthly demand for the next few months and the standard deviation of monthly demand for the items. First, she is focusing on all-season items. Seasonal items such as golf balls and fleece vests will be replenished just before the season. Consider, for example, the following all-season items:

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Avg. Monthly Demand Standard Dev. of Min Order Item Monthly Demand On Hand Quantity Executive sports bag 12 25 Retro stainless steel mug 15 2 4 60 Lava pen 35 6. 16 75 Heavyweight brushed cotton cap 60 6. 72