Watson's Office Supply stocks a special type of bond paper. The average rate of demand for the paper is twenty packages per week with a standard...

Watson's Office Supply stocks a special type of

bond paper. The average rate of demand for the

paper is twenty packages per week with a standard

deviation of ten packages. It costs $30 to place and

receive an order for this type of paper and $.45 to

carry a package of paper in inventory for a year.

a) What is the EOQ for this type of paper?

b) If the lead time for paper is constant at 2 weeks,

and Mr.Watson uses a reorder point of fifty

packages, what is the probability of a stock-out?

(Assume that the demand during the lead time

is normally distributed.)

c) What reorder point should Mr.Watson use if

he wishes the stock-out probability to be no

more than 2%?

d) Suppose that Watson's Office Supply decides to

switch to a fixed interval period review policy

for this bond paper, ordering every 16 weeks.

Determine what stocking level and safety stock

will give a 2% stock-out probability. (Assume

that the demand during the lead time and review

period is normally distributed.)

e) Given the EOQ calculated earlier, what advice

would you give Watson about his order

period?