Consider the following information on an inventory management system:

                  Item Cost:                                                 $10

                  Order Cost:                                               $250

                  Annual Holding Cost:                          33% of item cost

                  Annual Demand:                                   25,750

                  Average Demand:                                 515 per week

                  Std. Dev. of Demand:                         125 per week

                  Leadtime:                                                  2 weeks

Ignoring the uncertainty in the demand (i.e. looking only at average values), find the optimal order quantity and the reorder point. What is the annual inventory holding and ordering cost for this policy?

Consider now the uncertainty. The order quantity remains the same. If the target is to have a 98% fill rate, what should be the reorder point? What is the safety stock? How much additional inventory cost is incurred due to the safety stock? What should be the reorder point?