Demand for a component averages 80 units per week, with a weekly standard deviation of demand of 14 units. The current supplier of this component offers a four-week lead time. Stockout risk is to be kept at 8 percent. Assume that it costs $50 to hold one unit in inventory for a year. Suppose the annual cost for the items would be $500 higher if they were purchased from another vendor, but that vendor would offer a two-week lead time. Would it be better to go with the more-expensive but more-responsive vendor?

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The Answer of Demand for a component averages 80 units per week, with a weekly standard deviation of demand of 14 units. The current supplier of this component offers a four-week lead time. Stockout risk is to be kept at 8 percent. Assume that it costs $50 to hold one unit in inventory for a year. Suppose the annual cost for the items would be $500 higher if they were purchased from another vendor, but that vendor would offer a two-week lead time. Would it be better to go with the more-expensive but more-responsive vendor?

Demand for a Component Averages 80 Units Per Week, with a Weekly