The swedish company rossons sport sells skis and ski-equipment. they purchase sk

Question

The swedish company rossons sport sells skis and ski-equipment. they purchase skis at a price $ 260 per pair and sell them at a price of $ 240 per pair. Skis not sold this season can be sold early next season at discounted price of $ 200 per pair. In addition, they estimate the stock holding cost between season to be $ 25 per pair of skis.

pust sales figures show that demand per season is normally distributed with a mean of 459 pairs and a standard deviation of 56.
a) calculate the shortage and overage cost per pair
b.) Advise rossons sport about how many pairs of skis they should purchase
c.) What is the service level?

Explanation / Answer

c) Service level indicates vendor to fulfill demand of x% of customers.

To fulfill demand of 99% of customer vendor has to plan accordingly for his invetories

b) To have service level of 99% Means if they want to fulfill customer demand upto 99% which leaving only one customer unfulfilled.

Step 1) To get the service level factor use function NORMSINV

=NORMSINV(0.99) = 2.326

Step 2) Required inventory = Mean + Std dev. * service level factor = 459 + 56 * 2.326 = 589

So they should purchase 589 pair of shoes

a) Since vendors order quantity is not given shortage can not be derived.

Average cost per pair

Since average demand is 459, assuming fulfilling all the demand

average cost will be $260.

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