Osprey Sports stocks everything that a musky fisherman could
want in the Great North Woods. A particular musky lure has
been very popular with local fishermen as well as those who
buy lures on the Internet from Osprey Sports. The cost to place
orders with the supplier is $30/order; the demand averages
4 lures per day, with a standard deviation of 1 lure; and the in-
ventory holding cost is $1.00/lure/year. The lead time from the
supplier is 10 days, with a standard deviation of 3 days. It is im-
portant to maintain a 97 percent cycle-service level to properly
balance service with inventory holding costs. Osprey Sports is
open 350 days a year to allow the owners the opportunity to
fish for muskies during the prime season. The owners want to
use a continuous review inventory system for this item.
a. What order quantity should be used?
b. What reorder point should be used?
c. What is the total annual cost for this inventory system?