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Inventory management with multiple ordering opportunities and uncertain demand
3. A gourmet coffee shop in downtown San Francisco is open 200 days a year and sells an average of 75 pounds of Kona coffee beans a day. Daily demand can be assumed to be distributed normally with a 1 standard deviation of 15 pounds per day. After ordering (fixed cost = $16 per order), beans are always shipped from Hawaii within exactly 4 days. Per-pound annual holding costs for the beans are $3. a) What is the economic order quantity (EOQ) for Kona coffee beans? b) Suppose the coffee shop management has specified that the risk of a stock-out should be no more than 1%. What should the reorder point (ROP) be?
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