Question: Honeywell and Cootes law firm still uses pens and paper regularly rather than being a technology enabled company. They estimate that they use 8,000 high quality pens a year with a daily standard deviation of 10 pens. These high quality pens costs roughly $5 per pen. It is estimated that the holding cost is 4% of the value of a pen a year. The assistant manager places orders for pens from Office Supplies Inc., with an estimated ordering cost to be $40. From the time the assistant manager places an order, it takes 5 days for the order to arrive. Assume 365 days per year, 52 weeks a year, and 7 days in a week.
Assume the office manager would like to have a 99% service level. What is the optimal replenishment order up to level?