Sample Problem $2$

A regional warehouse purchases a certain machine tool, a rivet gun, from

various suppliers and then distributes them on demand to retailers in the

region. The warehouseoperates $5$ days per week, $52$ weeks per year. Only

when it is open can orders be received. The following data are estimated for a

rivet gun $/$ tool with double insulation a

$100$ machine tools

Lead time $(L)$

Holding $(L)=3$ days

Ordering cost $(H)=$$$9\mathrm{.}40/$unit$/$year

Cycle$-$service $(S)=$$$35/$order

Cycle$-$service level $=92$ percent

The warehouse uses a continuous review $($Q$)$ system.

a$.$ What order quantity, $Q,$ and reorder point, $R,$ should be used?

b$.$ If on$-$hand inventory is $40$ units, there is one open order for $440$ tools,and there are no backorders, should a new order be placed?