A retailer uses lot-size-reorder point policy to make replenishment decisions for a brand of shampoo. Shampoo is delivered from the distribution center of the supplier three weeks after it is ordered. A bottle of it costs the retailer $4. Fixed costs of ordering amount to $200 for bookkeeping expenses, and holding costs are based on 20 percent annual rate. The retailer estimates that the loss of customer goodwill for not being able to serve the shampoo when requested amounts to $8. Based on past experience, the three-weekly demand for the bottles of shampoo is considered to be uniformly distributed between
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