Question

Weekly demand for private label washing machines at Arcelik, a Turkish department store chain, is normally distributed with a mean of 500 and a standard deviation of 200. Arcelik has a source in China that delivers machines at a cost of 200 euros. The fixed cost of placing an order with a supplier is $100. The lead time required by the supplier is 9 weeks. A European supplier has offered to deliver washing machines with a guaranteed lead time of one week at a cost of 210 euro. The fixed cost of placing an order is unlikely to change and is expected to remain at $100 per order. Arcelik has a holding cost of 25% and targets a cycle service level of 99%. Should Arcelik accept the European supplier’s offer?

Answer 1

Answer:

Check the explanation

Explanation:

Mean, D = 500

Standard deviation, ao = 300

Mean, L = 9 weeks

Standard deviation, .s1 = 6 weeks

Use the following formula to calculate safety stock level:

Safety stock = $2.33 X \sqrt[]{9} X 300$  = 2093.7

In case of European supplier,

Safety stock = $2.33X\sqrt{1}X300$ = 699

Kindly check the attached images below to see the spreadsheet solution to the question above