The manager at Goodstone Tires, a distributor of tires in Illinois, uses a continuous review policy to manage inventory.

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The manager at Goodstone Tires, a distributor of tires in Illinois, uses a continuous review policy to manage inventory.

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The Manager At Goodstone Tires A Distributor Of Tires In Illinois Uses A Continuous Review Policy To Manage Inventory 1
The Manager At Goodstone Tires A Distributor Of Tires In Illinois Uses A Continuous Review Policy To Manage Inventory 1 (45.8 KiB) Viewed 25 times
The manager at Goodstone Tires, a distributor of tires in Illinois, uses a continuous review policy to manage inventory. The manager currently orders 10,000 tires when the inventory of tires drops to 6,000. Weekly demand for tires is normally distributed, with a mean of 2,000 and a standard deviation of 500. The replenishment lead time for tires is two weeks. Each tire costs Goodstone $40, and the company sells each tire for $80. Goodstone incurs a holding cost of 25 percent. At what cost of understocking is the manager's current inventory policy justified? How much safety inventory should Goodstone carry if the cost of understocking is $80 per tire in lost current and future margin?
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