Simkin's Hardware store also sells the Amazing Widget.

Mark Simkin wants to test out two policies of ordering either 75 or 160 Widgets, with a reorder point to be determined by you. In other words, every time inventory at the end of an evening is X Widgets or fewer, he will call his supplier and place an order for either 75 or 160 more. If he calls Monday night, it arrives Tuesday morning.

The holding costs are $3.00 per unit per day, and the revenue per unit is $10.00. His beginning inventory is 100 units. Stockouts become lost sales, not backorders. This means his inventory never goes below 0.

His demand is normally distributed with a mean of 40 and a stdev of 10. Use the spreadsheet model given to you in class to determine expected costs and profits for the parameters given below.

Test out various Reorder points for the Q=75 level. Based on your simulation results, which R do you recommend for Q = 75?

Test out various Reorder points for the Q=160 level. Based on your simulation results, which R do you recommend for Q = 160?

Write a management memo to Mark Simkin. In it, address the following questions:

• What full (Q,R) inventory policy do you recommend for the Q=75 and Q=160 levels? Outline the relevant metrics and compare and contrast them.
• He has asked, "I know there's a lot of moving parts here, and I want to understand what's going on. What is the effect of a bigger reorder point on Lost Sales, Holding Costs, Revenue, my Performance Metric, and the Service Level? Please walk me through it in detail and tell me why you think the each variable might be going up or down as a result of my reorder point R decision. Put your results in an easy-to-read table."
• He's asked also, "I know simulation is often used. But what I don't get is why the numbers keep jumping around so much? I mean, if you simulate a reorder point of 0 for Q=75, shouldn't it be the same holding cost each and every time?"
• If he had the ability to move to a smaller (say, Q=40) or a larger (Q=1000) reorder quantity, which direction would you recommend he go and why? Use the results of your simulation to guide your recommendations.
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(Q=75,R) Review Policy for Widgets Lost Sales Holding Cost Total Revenue Total Performance Service Level Linear (Service Level)