Question 5 (20 marks) CS Ltd distributes a wide range of iphone cases. The management of the CS Ltd uses the EOQ decision model to determine the optimal number of iphone cases to order. Management now wants to determine how much safety stock to hold. The company estimates annual demand is 10,000 cases. The company uses a simple EOQ model to order each time. The re-order point is 100 units. The company requires a 5% annual rate of return on investment. Other relevant holding cost includes costs of insurance, materials handling, breakage, shrinkage, and so on, per case is $45. The purchase cost per case is $100. The ordering cost is $ 25 per purchase order. Management has to estimate that the additional stock-out cost is $10 per case they are short. Required: 1. Determine the optimal level of safety stock (using 2-unit intervals) that the company should maintain so as to minimize total carrying cost and stock-out cost. The actual demand during the lead time period may vary with the following frequency distribution: Probability 0.2 0.14 0.14 0.40 0.16 0.10 0.04 Demand 94 96 98 100 102 104 106 (13 marks) 3. Recently, the CFO of the company is concerned about the creation of value for survival and growth purposes due to increasing competitiveness of the global business environment. The key is to create a competitive advantage in the ma by creating better customer value for the same or lower cost than that of competitors or creating equivalent value for lower cost than that of competitors. Discuss any essential changes in the inventory system so as to achieve this outcome. (7 marks)