A local service station is open 7 days per week, 365 days per year. Sales of 10W40 grade premium motor oil average 20 cans per day. Inventory holding costs are $0.50 per can per year. Ordering costs are $10 per order. Each can costs the station $2.00. Lead time is two weeks. Backorders are not practical – the motorist drives away.
A.Based on this data and assuming demand is constant, determine the optimal order quantity, the total annual cost, and the reorder point.
B.The boss is concerned about this model because demand really varies. The standard deviation of demand was determined to be 6.15 cans per day. The manager wants a 99% service level probability. Determine the safety stock level and the reorder point now