Genuine Parts is a spare parts supplier. The company advertises that it guarantees a service level of
Question:
Genuine Parts is a spare parts supplier. The company advertises that it guarantees a service level of 90 percent, for all the parts it carries. It has only one supplier who can deliver the items in 4 weeks. The weekly demand for one of the parts follows the Normal distribution with mean of 2,000 units. The standard deviation of demand during the lead time is 400 units.
The company is considering two new proposals to minimize out-of-stock situation.
Proposal 1: The Sales Director of the company suggested that the company should use 95% cycle-service level instead of 90%.
Proposal 2: The Accounts Director argued that a bi-weekly periodic review policy should be followed.
Compare the existing ordering policy with the suggestions proposed by the two directors. How much money can be saved in holding cost for safety stock, if any, for these two proposals?
Expert Answer:
