Please provide the work/math: You are the owner of Hotspices.com, an online reta

Question

Please provide the work/math:

You are the owner of Hotspices.com, an online retailer of hip, exotic, and hard-to-find spices. Consider your inventory of saffron, a spice (generally) worth more by weight than gold. You order saffron from an overseas supplier with a shipping lead time of four weeks and you order weekly. Average weekly demand is normally distributed with a mean of 40 ounces and a standard deviation of 30 ounces.

d.

Suppose it wants a .96 in-stock probability. What should its order-up-to level be?

d.

Suppose it wants a .96 in-stock probability. What should its order-up-to level be?

Explanation / Answer

The given data is

Shipping lead time = LT = 4 weeks

Order frequency = weekly

So, total lead time = L+1 = 4+1 =5 weeks

Weekly Demand = 40 ounces

Lead Time Demand = 40*5 = 200 ounces

Standard Deviation of Demand = 30 ounces

So Sigma = 30*sqrt(5) = 67.08

Instock Probability = 96%, so z value = 1.75

So the order upto level = S = Lead Time Demand + z * Sigma

So, S = 200 + 1.75* 67.08 = 318

So, order upto level = 318 units

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