The weekly requirement of furnace oil in a foundry has a mean of 3000 liters and a standard deviation of 900 liters. A liter of furnace oil costs Rs. 400 and the carrying costs are estimated at 25 percent. If the foundry uses a continuous review system of inventory control with a desired service level of 90 percent, then

1. What will be the reorder point and safety stock for furnace oil, if the lead time for supply is 1 week? (Consider the value of Z corresponding to 90% service level = 1.28)
2. If the reorder point is left unchanged when there is a 5 percent increase in the mean demand, how will it affect the service level?

Answer rating: 100% (QA)

To calculate the reorder point ROP and safety stock we can use the following formulas for continuous ... View the full answer