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QQ-Mart is a local grocery store. It sells a certain type of cheese. Excess demand can be backordered. The monthly demand of the cheese follows a normal distribution with mean of 250 and variance of 225. QQ-Mart reviews its inventory continuously and will place order with size Q when the inventory level hits R. The fixed cost per ordering is $10. The unit purchase price is $5. The annual interest rate of 10% is used to estimate the holding cost. The lead time for purchasing the cheese from the manufacturer is one week. QQ-mart wants to achieve a service level target that no stock-out in 95% the cycles. (Assume there are four weeks in one month.)

1) What is the mean and variance of the demand in lead time?

2) What is Q and R such that the desired service level can be achieved?

3) What is the safety stock?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92587528

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