Inventory management - Multiple replenishment opportunities (2)

A supplier for an electronics store has introduced quantity discounts to encourage larger order quantities of cameras. The price schedule is:

Quantity purchased	Price per unit
fewer than 525	$80
at least 525	$75

Suppose the monthly demand at a retail store that buys from this retailer and resells is 175 units. The supplier charges a fixed cost of $180 per shipment. The cameras are expected to sell well for multiple seasons, so multiple replenishment opportunities are possible.

What is the stock-out probability the retailer achieves by setting the reorder point to 215 units if the standard deviation of the monthly demand is 20 and the supplier can guarantee a 1-month lead time?

(Note: Use the z-table from the lecture notes, and choose the closest answer.)

Multiple Choice

• 3.0%

• 4.0%

• 2.28%