Question

3. Whole Foods Market sells Kaiser brand sausages. The market demand for Kaiser Sausages is uncertain but the mean is estimated to be 136000 packages/year with a standard deviation of 6800 packages/year. For each supply order processed the fixed cost includes a handling cost of $165/order plus a shipping cost of $390/order from the Kaiser warehouse to the Whole Foods Market. The holding cost for the sausage is $1.4/package/year. The supply lead time is fixed at 2 weeks. (iii) The supply chain manager discovers that the supply time is not constant but normally distributed with a standard deviation of 0.75 weeks. What is the new reorder level in 2 decimal places?

Answer 1

Mean Demand = D = 136000

Weekly Mean Demand = d = 136000 / 52 = 2,615.38

Std. Deviation per year = 6800

Weekly Std. Deviation = = 942.99 = 943

Lead time = 2 weeks

Std. Deviation = = 0.75 weeks

For 90% service level, Z = 1.28

Reorder level = d * L + Z** = 2615.38 * 2 + 1.28*0.75* = 5,230.76 + 1.36 = 5,232.12

Answer: 5,232.12

-----------------------------------------------------------------------------------------------------------------------

In case of any doubt, please ask through the comment section before Upvote/downvote.

If you liked the answer, please give an upvote. This will be quite encouraging for me, thank-you!!!