The new office supply discounter, Paper Clips, Etc. (PCE), sells a certain type of ergonomically correct office chair that costs $300
The annual holding cost rate is 40% of the item cost, annual demand is 900 units, and the ordering cost is $20 per order. The lead time is 4 days. Because demand is variable (standard deviation of daily demand is 2.4 chairs), PCE has decided to establish a customer service level of 90%. The store is open 300 days per year.
(a) What is the optimal order quantity?
(b) What is the safety stock?
(c) What is the reorder point?
(a) The optimal order quantity is Q* = = 17.32 or 17 chairs.
(b) Safety Stock is SS = 1.28 ? 2.4 ? = 6.14 or 6 chairs.
(c) ROP = lead time demand + safety stock = (3 chairs/day × 4 days) + 6.14 = 18 chairs.
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