Inventory Management: 3. Juan has a profitable web business of selling T-shirts priced at $25 each. His demand is pretty steady throughout the year (his website is up and running 365 days a year), approximately normally distributed with a mean of 30 T-shirts/day and a standard deviation of 10 T-shirts/day. He has a supplier in China that charges him $5 per T-shirt and a flat rate of $150 every time he places an order. Orders take exactly 50 days to arrive by container ship. His calculates his annual per unit holding costs at 20% of the wholesale cost of T-shirts.
a) What type of inventory management problem is this? Explain your answer.
i) Newsvendor (single period) model
ii) EOQ model with continuous demand distribution
iii) EOQ model with discrete demand distribution
b) Calculate how many T-shirts he should order from his China supplier at a time.
c) Calculate the level at which he should reorder T-shirts from China to experience at most a 10% chance of a stocking out. T-shirts, Juan should place an order for d) Fill in: When inventory drops to more T-shirts. AA —
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