Problems

When working with Problems 1 and 2, assume that a restaurant serves an average of 5000 bottles of wine per year. The standard deviation of the annual demand for wine is 1000 bottles. The annual holding cost for a bottle of wine is $1. It costs $10 to place an order for wine, and it takes an average of three weeks (with a standard deviation of one week) for the wine to arrive.

1. Assume that when the restaurant is out of wine it incurs a penalty of $5 as the result of lost goodwill. Also, the restaurant earns a profit of $2 per bottle of wine. Determine an optimal ordering policy for the wine.

2. Determine an inventory policy for wine that yields a 99 percent service level.

3. A reorder point policy is often referred to as a two-bin policy. How can a reorder point policy be implemented in a situation in which two bins are used to store inventory?