Chapter $6$ Inventory Control Models

$[$QX$]$: $6-45$ The Hardware Warehouse is evaluating the safety stock policy for all its items, as identified by the SKU code. For SKU M$4389,$ the company always orders $80$ units each time an order is placed. The daily demand is constant, at $5$ units per day; the lead time is normally distributed, with a mean of three days and a standard deviation of two days. Holding cost is S$3$ per unit per year. A $95\%$ service level is to be maintained.

a$.$ What is the standard deviation of demand during the lead time?

b$.$ How much safety stock should be carried, and what should be the reorder point?

c$.$ What is the total annual holding cost?