# Harvey's Specialty Shop is a popular spot specializing in international gourmet foods.One of the items Harvey sells

## Question:

Harvey's Specialty Shop is a popular spot specializing in international gourmet foods. One of the items Harvey sells is a popular mustard that he buys from an English company. The mustard cost Harvey $10 a jar and requires a six-month lead time to replenish stock. Harvey uses a 20% annual interest rate to calculate carrying costs and estimates that if a customer orders the mustard when it is out of stock, the cost of lost goodwill is $25 per jar. Accounting fees to place an order are around $50. During the six-month replenishment period, Harvey estimates that he sells an average of 100 jars (λτ=100), but there is substantial variation from one six-month period to the next. He estimates that the standard deviation of λ during each six-month period is 20. He Assume that demand is described by a normal distribution. Harvey would like to find the optimal refill size for replenishing mustard jars. He starts with an order size equal to EOQ and finds a reorder point R and the expected number of shortages n (R) associated with R.

(a) What is the value of R? Show calculations.

(b) What is the value of n(R)? Show calculations.

(c) Using the answers obtained in (a) and (b), find the new order size.

**Related Book For**

## Managing Business Process Flows Principles of Operations Management

ISBN: 978-0136036371

3rd edition

Authors: Ravi Anupindi, Sunil Chopra, Sudhakar Deshmukh, Jan Van Mieg