Example 3 A shop is open 5 days per week and 50 weeks per year. The weekly demand for water bottles is normally distributed with an average of 80 bottles per week, and a standard deviation of 10 bottles. Each bottle costs 500 Baisas. Orders cost OMR 2 and the holding rate is 10% per year. 1. Compute the EOQ and the number of orders on average made during the year. 2. The shop owner wishes to maintain a 95% service level. What would be the safety stock, the reorder point and the total cost if: a) There is a constant lead time of 3 weeks? b) The average lead time is 2 weeks, with a standard deviation of 1 week? Example 2 Week 1 2 3 4 5 6 7 8 9 10 Sales 110115 125 120 125 120 130 115 110 130 All is a drug wholesaler supplying 55 independent drug stores. All wishes to determine an optimal inventory policy for Comfort, a headache remedy. Sales of Comfort are relatively constant as the past 10 weeks of data indicate. Each case of Comfort costs All OMR10 and a 14% annual holding cost rate is used. The cost to prepare a purchase order for is OMR 12. The lead time for a delivery of Comfort has averaged 4 working days. Lead time demand has been estimated as having a normal distribution with a mean of 80 cases and a standard deviation of 10 cases. We want at most a 2% probability of selling out of Comfort during this lead time. 1. Determine the optimal order quantity 2 What reorder point should be used? 3 Determine the total annual inventory cost. WN Example 1 BS Shop sells a variety of quality handmade items to tourists. BS will sell 300 hand-made carved miniature replicas of a Colonial soldier each year, but the demand pattern during the year is uncertain. The replicas sell for OMR 20 each, and BS uses a 15% annual inventory holding cost rate. Ordering costs are OMR5 per order, and demand during the lead time follows a normal probability distribution with u= 15 and o= 6. 1. What is the recommended order quantity? 2. If BS is willing to accept a stock-out roughly twice a year, what is the probability that BS will have a stock-out in any one order-cycle? 3. What reorder point would you recommend? 4. What are the inventory holding and ordering costs