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.25 per unit per day, charged on the day-ending inventory count. The inventory replenishment process works as follows: Whenever the inventory level falls to r units (reorder point) or less, the manager issues an order to the supplier for q units (the reorder quantity). The administrative cost of placing and handling an order is estimated in , regardless of the order size. The supplier is very reliable and delivers orders on the fifth day, even on weekends and holidays. As daily demand for this product is subject to uncertainty, Ami decided to analyze historic information and concluded that demand is distributed according to a normal distribution with a mean of 20 units per day and a standard deviation of 6.2 units per day. The inventory level for this product on the first day of the year is 125 units. Ami wants to evaluate the financial impact of ordering 250 units whenever inventory levels go under 75 units. Deliverable: Try several different combinations of order quantity and reorder point and examine how it impacts the total annual cost for both the deterministic model (constant demand) and single random model (random demand). Explain your strategy for the different combinations of numbers you tried. What conclusions can you draw based on the numbers you tried? What are your recommendations for PK Village based on these numbers?
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