A Product Has a Reorder Point of 110 Units,and Is

question 136

Essay

A product has a reorder point of 110 units,and is ordered four times a year.The following table shows the historical distribution of demand values observed during the reorder period.
Managers have noted that stockouts occur 30% of the time with this policy,and question whether a change in inventory policy,to include some safety stock,might be an improvement.The managers realize that any safety stock would increase the service level,but are worried about the increased costs of carrying the safety stock.Currently,stockouts are valued at $20 per unit per occurrence,while inventory carrying costs are $10 per unit per year.What is your advice? Do higher levels of safety stock add to total costs,or not? What level of safety stock is best?

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Definitions:

Calcification

is the accumulation of calcium salts in a body tissue, making that tissue hard and rigid.

Proliferation

Proliferation refers to the rapid multiplication of cells or organisms, often used in the context of cellular biology and cancer research.

Intramembranous Ossification

A process by which bone tissue is formed directly on or within fibrous membranes, primarily occurring in the cranial bones of the skull and the clavicles.

Endochondral Ossification

The process by which bone tissue is formed from cartilage, contributing to the growth and development of the skeletal system.