Rags2Riches Rags2Riches (R2R) sells handwoven bags created by trained artisans living in impoverished neighborhoods in the Philippines. R2R curates an online website from which a customer can purchase one of its many handbags, backpacks, or purses. To ensure that it can deliver in time to its customers, R2R keeps inventory of its most popular products in a fulfilment centre. Whenever a replenishment is needed, it places an order from a local supplier who can deliver within a few hours. The cost of placing an order is $1000 per order. R2R has an inventory holding cost of 30% per year. The company operates 360 days per year. One of R2R's best-selling items is the Buslo bag, which retails for $125 per bag. The supplier charges R2R a unit procurement cost of $30 for each Buslo bag it orders. Suppose that R2R sells always three Buslo bags a day.

a) Suppose that R2R decides to order exactly four times a year, how many Buslo bags should it order each time to minimize inventory holding cost without ever

running out?

b) Suppose that R2R decides to order 350 units each time. What is the smallest annual inventory holding cost that R2R can incur without ever running out?

c) What is the optimum order size?

d) Suppose that R2R decides on an order size of 350 units. Now, the supplier takes 30 days before delivering the order to R2R. What should the fulfilment centre inventory level be at the time point when R2R places an order so that it does not incur backorders or have excess inventory before the order arrives?

R2R also sells the Buena zip coin purse. The daily demand for this item is normally distributed with a mean of 10 units and a standard deviation of 3. R2R decided to partner with the Buena supplier so that it can place an order at the beginning of each Monday, and R2R does not incur a fixed cost for ordering. It takes five days before an order placed arrives at R2R, and R2R pays upon placing an order. R2R would like to have a service level of 90%.

e) What is the optimal average safety stock of Buena coin purses that R2R should

have?

f) What is the average cycle stock of Buena coin purses?

g) Suppose that R2R decides to have a target stock level of 60. Today is a Monday and there are 2 people in the waiting list for a Buena coin purse. How many units

of the coin purse should R2R order today?