Brian, inventory manager at company ABC, is reviewing the re-order point R and order quantity Q parameters for item X. The monthly demand for item X is normally distributed with mean 280 items and standard deviation 40 items. Item X is purchased from a supplier in China with lead time 3 months. The fixed cost of placing a replenishment order is £50 and the inventory holding cost for item X is £0.50 per unit per month. The current inventory parameters for item X are R = 900 units and Q = 540. Calculate the type 1 and type 2 service levels for item X for the current inventory parameters. If Brian wants to achieve a type 1 service level of 98%, how would you calculate R and Q? 

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Answer rating: 100% (QA)

Average monthly demand d 280 units Std dev of monthly demand 40 units Lead time L 3 months O... View the full answer