Operations Management: Processes and Supply Chains, 12th Edition

Solved Problem 6

Grey Wolf Lodge is a popular 500-room hotel in the North Woods. Managers need to keep close tabs on all room service items, including a special pine-scented bar soap. The daily demand for the soap is 275 bars, with a standard deviation of 30 bars. Ordering cost is $10 and the inventory holding cost is $0.30/bar/year. The lead time from the supplier is 5 days, with a standard deviation of 1 day. The lodge is open 365 days a year.

1. What is the economic order quantity for the bar of soap?

2. What should the reorder point be for the bar of soap if management wants to have a 99 percent cycle-service level?

3. What is the total annual cost for the bar of soap, assuming a Q system will be used?

Solution

1. We have $D=\left(275\right)\left(365\right)=100$