Stephen imports tilapia fillets to South Africa. Recently, Stephen has seen demand for the imported fillets soar as the local market demand for the fish has grown considerably. He has, however, been experiencing what he feels are frequent stock-outs and is considering keeping safety stock to avoid this in future. 

Demand in lead time

500

1 000

1 100

1 200

Probability

0,10

0,40

0,30

0,20

One fillet (one unit) sells for R20, while it costs R10. Stephen has estimated his carrying cost per unit at R2, while his order costs per order is R1 000. His business usually sells 25 000 fillets per year.

Determine how much safety stock Stephen should hold for his business.

Answer rating: 100% (QA)

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