Exercise 6
Consider a distributor of TV sets that orders from a manufacturer and sells to retailers. Suppose the distributor of the TV sets is trying to set an inventory policies at the warehouse for one of the TV models. Assume that whenever the distributor places an order for this TV sets, there is a fixed ordering cost of $4,500 which is independent of the order size. The cost of the TV set to the distributor is $250 and annual inventory holding cost is about 18% percent of the product cost. Replenishment time is two weeks.
The table below provides data on the number of TV sets sold to retailers in each of the last 12 months. Given that the distributor would like to ensure 97% service level—with a corresponding z-value of 1.88, what is the reorder point and the order quantity that the distributor should set?
Month
|
Sep.
|
Oct.
|
Nov
|
Dec
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sales
|
200
|
152
|
100
|
221
|
287
|
176
|
151
|
198
|
246
|
309
|
98
|
156
|
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