A Product Has Variable Demand and Constant Lead Time

question 11

Essay

A product has variable demand and constant lead time. Currently this product is managed by a fixed-period inventory system, for which the review period is one week. Lead time is four weeks. Annually about 5,200 units of this product are sold. The current target inventory is 500 units. Today is review day; 75 units are on the shelves, and orders placed at previous reviews in the amount of 110, 60, and 30 have not yet been received. There are no backorders.
a. How much is the firm allowing for safety stock in this case?
b. What should be the order amount this week?

---

Definitions:

Disclosure Statements

Information that franchisors are required to provide to potential franchisees.

Federal Trade Commission

A United States government agency that aims to prevent fraudulent, deceptive, and unfair business practices in the marketplace.

Prospective Franchisees

Individuals or entities considering the acquisition of franchise rights to operate a branded business.

Equity Investments

Financial contributions made into companies by purchasing shares in order to gain partial ownership and potentially share in the profits.