A large electronics superstore sells a popular handheld computer. The store pres

ID: 402579 • Letter: A

Question

A large electronics superstore sells a popular handheld computer. The store presently manages

its inventory of this item with the following process: When the number of computers in stock

drops to 20, it places an order for 35 to the manufacturer. (20 is called the reorder point and 35 50

is called the order size.) The amount of time to receive an order varies a bit, but can be

approximated by a normal distribution with a mean of 5 days and a standard deviation of .3 days.

An examination of sales records (at times when there are computers in stock) shows that the time

between purchases of a computer is 2 hours on average (with an exponential distribution). The

store is open 10 hours per day, 7 days per week. The store estimates that during the next 2

months this demand pattern should remain steady.

Management wants to satisfy at least 90% of the customer demand directly from the storeâ€™s

inventory. Subject to this, of course, management wants to minimize its costs. In this case, the

costs are $100 every time an order is placed (regardless of its size) and $.50 per day for every

computer that is in inventory at the store. Management wants to determine whether it should

change its reorder point and order size.

where are the points?

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