Using a computerized Inventory Management System, a Paint Supply Store franchise continuously monitors the inventory of all the paint located at each of their 15 stores and their distribution warehouse. The Paint Supply Store franchise sells an average of 42 gallons of Orange Paint every week (for 52 weeks per year, Standard Deviation of the Demand = 5 gallons). They purchase Orange Paint from their supplier at a price of $2.50 per gallon. It takes 1.50 weeks to receive an order from the supplier. Administrative costs for Ordering paint have been estimated to be $20 per order. Holding Costs = 25% of the purchase price per gallon per year. How much Safety Stock should the company hold to have a Service Level of 85.0%?

A.

10 gallons of paint

B.

6 gallons of paint

C.

34 gallons of paint

D.

218 gallons of paint

E.

66 gallons of paint

Reorder Point, ROP = dL + SS Service Level z Value 99.99% 3.719 d = Average Demand Rate per Time Period 99.90% 3.090 D = Demand Rate per Year 99.00% 2.326 95.00% 1.645 L = Average Lead time (time periods) 90.00% 1.282 SS = Safety Stock = z odl 85.00% 1.036 80.00% 0.842 (Assuming Lead Time is constant as in Periodic review) a = Standard Deviation of the demand z = Number of Standard deviations corresponding to a service level Oal Loa Q = Order Quantity Average Inventory Level = Q/2 + SS H = Holding Cost Per Year Per Unit S = Ordering/Setup Cost Per Order Total Annual Inventory Cost = ()+ @)s + H(SS) 2DS Time Between Economic Order Quantity, EOQ = EOQ Orders = TBO = D