A product sold by Home Depot, Inc., with an annual demand of 1000 units has Co = $25.50 and Ch = $8. The demand exhibits some variability such that the lead-time demand follows a normal probability distribution with µ = 25 and standard deviation = 5.
a. Determine the recommended order quantity.
b. Determine the reorder point and safety stock if the firm desires, at most, a 2% probability of stock-out on any given order cycle.
c. If a manager sets the reorder point at 30, determine the probability of a stock-out on any given order cycle. Determine the number of times the manager should expect a stock-out during the year if this reorder point were used.