Problem: Inventory Review Policies.

Note : Use Excel and show inputs!

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Weekly demand for 12 frames at the Frame Shop is normally distributed with a mean of 250 and a standard deviation of 150. The store manager currently monitors inventory every 3 weeks. The manufacturer takes two weeks to fulfill an order once it is placed. Each units costs (c) $2 and incurs a holding cost (h) of 25%. Shipments have a fixed cost (S) of $100.

A. What safety inventory must the shop maintain to achieve a cycle service level of 95%? What is the appropriate order up to level?

B. Management is considering a continuous review policy. They have identified a system and software that would add $150 in additional costs annually. What is the reduction in safety inventory due to the continuous review policy? Does the annual savings in inventory related costs justify the implementation of the continuous review policy?

Note : Use Excel and show inputs!