Demand for a Component Averages 80 Units Per Week, with a Weekly

question 25

Essay

Demand for a component averages 80 units per week, with a weekly standard deviation of demand of 14 units.The current supplier of this component offers a four-week lead time.Stockout risk is to be kept at 8%.Assume that it costs $50 to hold one unit in inventory for a year.Suppose the annual cost for the items would be $500 higher if they were purchased from another vendor, but that vendor would offer a two-week lead time.Would it be better to go with the more-expensive but more-responsive vendor?

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Definitions:

CEO Pay

The compensation package awarded to the chief executive officer of a corporation, which may include salary, bonuses, stock options, and other benefits.

Competitive Labor Market

A market in which workers compete for jobs and employers compete for workers, resulting in the equilibrium wage rate being determined.

Principal-Agent Problem

A conflict in priorities between a person or group (the agent) making decisions on behalf of another person or group (the principal).

Efficiency Wages

Efficiency wages are higher than market wages paid by employers to increase productivity, worker loyalty, and morale.