Question

Kelly's Service Station does a large business in tune-ups. Demand has been average 210 spark plugs per week. Holding costs are $0.01 per plugs per week, and reorder costs are estimated at $10 per order. Kelly does not want to be out of stock on more than 1% of his orders. There is one-day delivery time. The standard deviation of demand is five plugs per day. Assume a normal distribution of deman during lead time and a seven-day work week.

A. What inventory policy do you suggest for kelly's station?
B. What is the average amount of safety stock for the reorder point in part a?

Answer 1

I would suggest the Q-model inventory policy for Kelly's Service Station and the average amount of safety stock for the reorder point is 175 spark plugs.

Step-by-step explanation:

The inventory policy I would suggest for Kelly's Service Station is the Q-model. This model uses a fixed quantity reorder point system, where Kelly would order a fixed quantity of spark plugs every time the inventory level reaches a certain point, known as the reorder point. In this case, Kelly should set the reorder point at the average demand during lead time, which is 35 spark plugs. When the inventory level reaches 35, Kelly should place an order for 210 spark plugs.

The average amount of safety stock for the reorder point can be calculated by subtracting the reorder point from the average demand during lead time. In this case, the average amount of safety stock would be 210 - 35 = 175 spark plugs.