A hospital orders its blood from a regional blood bank. Each year, the hospital uses an average of 1040 pints of type O blood. Each order placed with the regional blood bank incurs a cost of $250. The...

A hospital orders its blood from a regional blood bank. Each year, the hospital uses an average of 1040 pints of type O blood. Each order placed with the regional blood bank incurs a cost of $250. The lead time for each order is 5 days. It costs the hospital $20 to hold 1 pint of blood in inventory for a year. The stockout cost per pint is estimated to be $50. Annual demand for type O blood is normally distributed with standard deviation 43.26 pints.


a. Determine the optimal order quantity, reorder point, and safety stock level. Assume that 365 days equal 1 year and that all demand is backlogged.


b. What service level requirement (from model 2) is equivalent to this $50 stockout cost?