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    Calculating the various inventory parameters

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    The Hardware Warehouse is evaluating the safety stock policy for all its items, as identified by the SKU code. For SKU M4389, the company always orders 80 units each time an order is placed. The daily demand is constant, at 5 units per day; the lead time is normally distributed, with a mean of 3 days and a standard deviation of 2. Holding cost is $3 per unit per year. A 95% service level is to be maintained.

    (a) What is the standard deviation of demand during the lead time?
    (b) How much safety stock should be carried, and what should be the reorder point?
    (c) What is the total annual holding cost?

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    Solution Preview

    Please refer attached file for missing expressions.

    (a) What is the standard deviation of demand during the lead time?
    Daily demand=d=5 units
    Standard ...

    Solution Summary

    Solution describes the steps to calculate standard deviation of demand during lead time, safety stock and total annual holding cost in the given case.