Kitchen and Beyond, a US-based retail store chain that sells all kinds of kitchenware, is rethinking its inventory strategy. They have decided to start with the white tableware, a pretty standard product sold in boxes of 24.

Kitchen and Beyond pays its suppliers $10 per box. The lead time for receiving an order is 2 weeks. Kitchen and Beyond takes ownership of the boxes the moment they leave the supplier's facility. The ordering cost is $100 per order and the holding cost is 15% per year. The annual demand for this product (in boxes) is normally distributed with a mean of 1218 and a standard deviation of 294. (Assume 48 weeks in a year)

Two different inventory policies have been proposed by different teams at the company:

• Policy 1: (s1, Q1) : (50,130)
• Policy 2: (s2, Q2) : (75,100)

1)

What would be the inventory costs associated with Policy 1?

Cycle Stock cost for Policy 1?

Pipeline Inventory cost for Policy 1?

2)

What would be the inventory costs associated with Policy 2?

Cycle Stock cost for Policy 2?

Pipeline Inventory cost for Policy 2?

3)

Which policy will provide the highest CSL??

CSL for Policy 1?

CSL for Policy 2?

4)

You firmly believe that you can propose a better inventory policy. Calculate the optimal inventory policy to achieve a CSL of 90%.

Reorder point s3?

Order quantity Q3?

5)

The Chief Operating Officer has decided that all inventory policies should follow the same exact review period: 2 weeks.

What Order-Up-To-Point quantity (S) would you suggest to comply with the COO requirements and maintain a CSL of 90% at the minimum cost?