solution

The distributor of Sumitomo Tires in Egypt estimates the annual demand of tires for next year to be normally distributed with a mean of 100,000 tires and a standard deviation of 3,000 tires. The ordering cost is estimated to be E£ 20,000 per order and the holding cost is E£ 80 per tire per year. The store is open 300 days a year and the lead time is assumed to be constant and equal to 60 days. (a) What is the economic order quantity (EOQ) for Sumitomo Tires? (b) What is the average holding cost per year for Sumitomo Tires? (c) What is the average ordering cost per year for Sumitomo Tires? (d) What is the total cost per year? (e) If the company wants to reduce the probability of stockout risk to less than 2%, what should the reorder point be? (f) What is the safety stock needed to achieve a 2% risk of stockout during lead time? (g) What is the annual holding cost to maintain the level of safety stock needed to support a 2% risk? (h) If the manager specified that a 10% risk of stockout during lead time would be acceptable, would the safety stock holding cost increase or decrease?