One of the largest selling items in J.C. Ward’s Department Store is a new model of refrigerator that is highly energy-efficient. About 40 of these refrigerators are being sold per month. It takes about a week for the store to obtain more refrigerators from a wholesaler. The demand during this time has a uniform distribution between 5 and 15. The administrative cost of placing each order is $40. For each refrigerator, the holding cost per month is $8 and the shortage cost per month is estimated to be $1.

The store’s inventory manager has decided to use the stochastic continuous-review model presented in Sec. 18.6, with a service level (measure 1) of 0.8, to determine an (R, Q) policy.

(a) Solve by hand for R and Q.

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T (b) Use the corresponding Excel template to check your answer in part (a).

(c) What will be the average number of stockouts per year with this inventory policy?

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