The Polly Company wishes to determine the amount of safety stock that it should maintain for product D that will result in the lowest cost. The following information is available:
|
Stockout cost |
$80 per occurrence |
|
Carrying cost of safety stock |
$2 per unit |
|
Number of purchase orders |
5 per year |
The available options open to Polly are as follows:
|
Units of Safety Stock |
Probability of Running Out of Safety Stock |
|
1. 20 |
40% |
|
2. 40 |
20 |
|
3. 50 |
10 |
|
4. 55 |
5 |
What is the optimal amount of safety stock?