A distributor uses 500 packing crates a month, which it purchases at a cost of $10 each. The manager has assigned an annual carrying cost of 30% of the purchase price per crate. Ordering costs are $50. Currently the manager orders once a month – a) How much could the firm save annually in ordering and carrying costs by using the EOQ?
b) If the creates 5 days of lead time and 2 standard deviation of lead time, what will be the approximate safety stock for covering 95% of uncertainty? What is the re-order point for the distributor?
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