Question: Question 5. A company is using continuous review system for its inventory. Due to the contracts made with the customers, the weekly demand is constantly

Question 5. A company is using continuous review system for its inventory. Due to the contracts made with the customers, the weekly demand is constantly 40 units. The average lead time of orders is 2 weeks and the standard deviation of lead time is 1 week. The current service level is 95%. In order to reduce inventory holding costs, the company wants to reduce its reorder point. To achieve this, there are two options that have approximately the same cost for the company: reduce the standard deviation of lead time to 0.5 weeks or reduce the service level to 90%. Which option is more advantageous for the company? How much reduction does this option bring in the reorder point as opposed to the current situation? Show your calculations.

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