Question

Case Study – Kyle Bits and Bytes

Kyle Bits and Bytes, a retailer of computing products sells a variety of computer-related products. One of Kyle’s most popular products is an HP laser printer. The average weekly demand is 200 units. Lead time (lead time is defined as the amount of time between when the order is placed and when it is delivered) for a new order from the manufacturer to arrive is one week.

If the demand for printers were constant, the retailer would re-order when there were exactly 200 printers in inventory. However, Kyle learned demand is a random variable in his Operations Management class. An analysis of previous weeks reveals the weekly demand standard deviation is 30. Kyle knows if a customer wants to buy an HP laser printer but he has none available, he will lose that sale, plus possibly additional sales. He wants the probability of running short (stock-out) in any week to be no more than 6%.

		Medium-Scale		Large-Scale
		Expansion Profits		Expansion Profits
		Annual Profit ($1000s)	P(x)	Annual Profit ($1000s)	P(x)
Demand	Low	50	20%	0	20%
	Medium	150	50%	100	50%
	High	200	30%	300	30%
Expected Profit ($1000s)
Risk Analysis for Medium-Scale Expansion
Demand	Annual Profit (x) $1000s	Probability P(x)	(x - µ)	(x - µ)2	(x - µ)2 * P(x)
Low	50	20%
Medium	150	50%
High	200	30%
				σ2 =
				σ =
Risk Analysis for Large-Scale Expansion
Demand	Annual Profit (x) $1000s	Probability P(x)	(x - µ)	(x - µ)2	(x - µ)2 * P(x)
Low	0	20%
Medium	100	50%
High	300	30%
				σ2 =
				σ =

What should be the reorder point? How many HP laser printers should he have in stock when he re-orders from the manufacturer?

My ROP was 218 units and my Professor said it is too low. You must do the work again. Please help me with this problem.

Answer 1