1. What is the customer service level?
Problem 7.1
R = 400/week
Q = 4(400) = 1600
L = 1
ROP = 500
R = N(400, 125)
The table will give
this probability
Page 319: Normal table z
Second digit
after decimal
Given positive z
Up to the first digit
after
decimal
Probability

3. Increasing service level increases the required safety inventory more than proportionately.
The process of selecting service level and safety inventory level is an important strategic decision.
A firm may choose to provide high quality service in terms of product availability, or it may choose to be a low cost supplier by holding down inventory costs.
Therefore, the firm decide where to position itself in the two dimensional space of quality-cost.
The trade-off between quality and cost is shown in the graph
This graph is a perfect example to show how a strategic position could be operationalized.