Authentic Thai rattan chairs are delivered to Gary Schwartz\'s chain of retail s

Question

Authentic Thai rattan chairs are delivered to Gary Schwartz's chain of retail stores, called The Kathmandu Shop, once a year. The reorder point, without stock, is 200 chairs. Carrying cost is $30 per unit per year, and cost of a stockout is $60 per chair per year. Given the demand probabilities during the lead time, how much safety should be carried?

0                   0.2

100              0.2

200              0.2

300              0.2

400            0.2

The optimal quantity of safety stock which minimizes expected total cost is ___ units? (Enter response as a whole number.)

Explanation / Answer

Demand Probability D*P 0 0.2 0 100 0.2 20 200 0.2 40 300 0.2 60 400 0.2 80 Avg lead time demand 200 Since reorder Qty is 200 chairs as given and the lead time stock =200 & hence the safety stock Safety Stock = reorder Qty+ lead time stock = 200+200 = 400

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