The purchasing manager for a firm is trying to determine what the safety stock should be for a particular product. She has developed the following table, which gives the distribution of demand during the lead-time and the probabilities: Demand During Lead- Time Probability 40 0.20 50 0.2 60 0.25 70 0.20 80 0.10 The carrying cost is $5 per unit per year, the ordering cost is $30 per order, and the stock out cost is $40 per unit. The reorder point is 60 units, and 6 orders are placed each year. What level of safety stock should be maintained?
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Determine the demand for the product during the lead-time. Demand during lead-time = 40 Probability = 0.20 Show more…
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