The Suregrip Tire Company carries a certain type of tire with the following characteristics:
Average annual sales = 600 tires
Ordering cost = $40 per order
Carrying cost = 25 percent per year
Item cost = $50 per tire
Lead time = 4 days
Standard deviation of daily demand = 1 tire
a. Calculate the EOQ.
b. For a Q system of inventory control, calculate the safety stock required for service levels of 85, 90, 95, 97, and 99 percent.
c. Construct a plot of total inventory investment versus service level.
d. What service level would you establish on the basis of the graph in part c? Discuss.