IME 405 Dr.

Tali Freed
Inventory Management Variable Demand
EOQ, Reorder Point, Service Level, and Safety Stock Problems
1. What is the safety stock level required to satisfy a service level of 85% given
the data on slide #81 of the Inventory Management presentation on PL?

2.

Henry Quintet is the owner of Honest Henrys, the largest car dealership in
this part of the country. After much investigation and OR studying Henry
determines that his order cost for any size batch of cars is $1500, and his
carrying cost is $3000 per car per year. After considering the high carrying
costs, Henry decides to keep a service level of 75%. Car sales are relatively
uniform at a rate of 900 cars per year.
Cars are delivered 20 days after an order is placed. The probability
distribution of demand during these 20 days is Normal, with a mean of 50
and a standard deviation of 15.
a. Solve for the optimal order quantity
b. Use a table of the Normal distribution to solve for the reorder point.
c. How much safety stock does this inventory policy provide?

3. One of the largest selling items at the Seals Department Store is a

refrigerator, with sales of about 40 units per month. The order lead time from
the vendor is about a week. The demand during the lead time has a uniform
distribution between 5 and 15 units. Order cost is $40, and holding cost is $8
per
a.
b.
c.
d.

unit per month. The store manager wants to have a service level of 80%.
What should be the order quantity?
What is the reorder point?
What is the safety stock level?
What is the average number of stockouts per year?