BADM 7120: Operations Management Inventories with Probabilistic Demand Example Problem #2: A product with an annual...

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BADM 7120: Operations Management Inventories with Probabilistic Demand Example Problem #2: A product with an annual demand of 1000 units has an ordering cost = $25.50 per order (Co or set-up cost, S) and a carrying cost = $8.00 per unit (Ch or i*C). The demand exhibits some variability such that the lead-time demand follows a normal probability distribution with m = 25 units and a standard deviation of 5 units (which has been stable over the course of a year). Determine the following: A. The recommended order quantity. B. The reorder point and safety stock if the firm desires at most a 1% probability of stock- out on any given order cycle. C. If a manager sets the reorder point at 30, what is the probability of a stock-out on any given order cycle? How many times would you expect a stock-out during the year if this reorder point were used? BADM 7120: Operations Management Inventories with Probabilistic Demand Example Problem #2: A product with an annual demand of 1000 units has an ordering cost = $25.50 per order (Co or set-up cost, S) and a carrying cost = $8.00 per unit (Ch or i*C). The demand exhibits some variability such that the lead-time demand follows a normal probability distribution with m = 25 units and a standard deviation of 5 units (which has been stable over the course of a year). Determine the following: A. The recommended order quantity. B. The reorder point and safety stock if the firm desires at most a 1% probability of stock- out on any given order cycle. C. If a manager sets the reorder point at 30, what is the probability of a stock-out on any given order cycle? How many times would you expect a stock-out during the year if this reorder point were used?