# solution

Jane uses the order-up-to model to manage the inventory of flour in the restaurant. The daily consumption of flour at the restaurant follows a normal distribution with averages of 25 lbs and standard deviation of 2 lbs.

Suppose Jane can buy flour from a supplier at the selling price of \$2 per lb. The daily holding cost for each lb of flour is 3% of the selling price.

The lead time is 4 days, and the effective delivery lead time is 5 days, i.e., L+1 = 5 days. The fixed delivery cost is neglected.

If the flour is out-of-stock, Jane estimates the penalty is \$5/lb/day.

A) Which of the following correctly present the unit holding cost of the flour?

\$0.03/lb, \$2/lb , \$0.06/lb, \$0.06/lb/day

B) What is the critical ratio of the flour?

100%, 99.4%, 98.8%, 71.4%

C) Jane needs to hold ? lbs of flour as safety stock. (Round your answer to the nearest integer)

Note: you can calculate the z value using Excel.

D) The order-up-to level S for the flour = ? lbs. (Round your answer to the nearest integer)

E) At the beginning of a day, Jane has 50 lbs of flour held on-hand and 30 lbs of four in transit. How much more lbs of flour should Jane order?

Put 0 if you think no order should be placed.

F) At the beginning of a day, Jane has 25 lbs of flour held on-hand and 120 lbs of four in transit. How much more lbs of flour should Jane order?

Put 0 if you think no order should be placed.

i) If Jane chooses her own critical ratio at 95% for the flour instead of using the critical ratio calculated in B, what will happen to the safety stock and the on-hand inventory level?

Safety stock will decrease, but the on-hand inventory level will not be affected.

Safety stock will decrease, but the on-hand inventory level will increase.

Both the safety stock and the on-hand inventory level will increase.

Both the safety stock and the on-hand inventory level will decrease.

Safety stock will increase, but the on-hand inventory level will not be affected.

O)

Which of the following statement of risk pooling effect is NOT true?