Question

# Ray's Satellite Emporium wishes to determine the best order size for its best-selling satellite dish. Ray...

Ray's Satellite Emporium wishes to determine the best order size for its best-selling satellite dish. Ray has estimated that weekly demand for this model to be 25 units with a standard deviation of 5 units. His cost to carry one unit is \$50 per year and the cost of placing an order with his supplier is \$25. He's open 52 weeks a year. Assume weekly demand is normally distributed.

(4 pts each)

a. What is Ray’s economic order quantity in this situation? (Hint: Use average annual demand in EOQ formula)

b. The lead-time for ordering from this supplier is 3 weeks. What are the mean and standard deviation of demand during lead time?

c. Ray desires an in-stock service rate of 95%. How many units should Ray have on-hand at the time he places an order? How many units of safety stock will he carry?

d. If Ray increases his in-stock service rate to 99% how many units of safety stock will have to carry?

e. Ray is able to negotiate a lead-time of 2 weeks with the supplier. Now what safety stock will he have to carry with 95% and 99% in-stock service levels?

f. Suppose Ray is able to reduce the standard deviation of demand (through a combination of lowered prices and loyalty schemes) to 3 units. How will this impact his safety stock assuming lead time of 3 weeks with a service level of 95%?

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