Kanton Inc. is committed to being the premier warehouse distributor of automotive parts and accessories that are sold at neighborhood stores. The company stocks both the brand name products as well as the competitively priced lines. One particular part, a popular brand of tail lamp, is purchased by the warehouse for $1.50 each. It is estimated that the cost of order processing and receipt is $100 per order. The company uses an inventory carrying charge based on a 28 percent annual interest rate. The monthly demand for lamps follows a normal distribution with a mean of 280 and a standard deviation of 77. The order lead time is assumed to be five months. Assume that if a lamp is demanded when the warehouse is out of stock, then the demand is back-ordered, and the cost assessed for each back-ordered demand is $12.80. Determine the following quantities:
- Determine the optimal (Q, R) for the company to satisfy α=0.95 service level.
- Determine the optimal (Q, R) for the company to satisfy β=0.95 service level.
