1. Johnson Shoe Company orders men’s shoes at a buyer’s meeting in New York City. Because the shoe is designed for spring and summer months, it cannot be expected to sell in the fall. Johnson plans to hold a special August clearance sale in an attempt to sell all shoes not sold by July 31. The shoes cost $40 a pair and retail for $60 a pair. At the sale price of $30 a pair, all surplus shoes can be expected to sell during the August sale. If you were the buyer for the Johnson Shoe Company, how many pairs of the shoe would you order? Assume that the demand for these shoes are normally distributed with a mean of 500 and a standard deviation of 20.
b. Suppose we rephrase this problem and state that the average demand during the reorder period is 500 units, and the standard deviation is 20 units. Johnson Shoe Company wants to follow a policy that results in stockouts occurring 2% of the time. How much safety stock should the company maintain? And what will be the service level?