A retailer sell an item for which the weekly demand can be described by the following description:

There is an initial inventory of 200 units of the item and the retailer order in batch of 250 units
whenever inventory level fall below 100. Past experience indicates that the lead time varies as follow:
Demand
Probability
Lead time Probability
50
0.03
1
0.25
100
0.04
2
0.50
150
0.09
3
0.25
200
0.15
250
0.38
300
0.15
350
0.09
400
0.04
450
0.03
Note: orders are made at the end of the week and if lead time is 1 week, the inventory received after 1
full week.
Unit cost of holding is RM0.50 applied to the total inventory held at each ending. The cost of placing
order is RM50.00. If there is no stock to satisfy the customer, the retailer suffers a loss of RM5.00 for
each unit of unsatisfied demand.
a) Determine the expected demand per week.
b) Using the following random number, stimulate the demand of 15 weeks with the objective of
obtaining the total inventory cost for each week.
Demand
: 87 55 81 22 4 62 21 45 81 82 43 96 17 70 61
Lead time
: 53 17 73 61 99
c) From your simulation, determine the following:
i. Demand per week.
ii. Total inventory cost.

Demand Probability Random Numbers

Lower
Upper
50
0.03
01
03
100
0.04
04
07
150
0.09
08
16
200
0.15
17
31
250
0.38
32
69
300
0.15
70
84
350
0.09
85
93
400
0.04
94
97
450
0.03
98
00

Lead time

Probability

1
2
3

0.25
0.5
0.25

Holding cost :
Ordering cost :
Stockout cost :
Reoder level :
Reorder point :

Random Numbers
Lower
Upper
01
25
26
75
76
00
RM 0.50
RM 50.00
RM 5.00
250 units
100 units

Week
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Stock
received

Opening
stock

0
0
250
0
250
0
0
250
0
0
250
0
0
0

200
0
0
250
50
250
0
0
250
0
0
250
0
0
0

RN 1
87
55
81
22
04
62
21
45
81
82
43
96
17
70
61

Demand

Closing
stock

350
250
300
200
100
250
200
250
300
300
250
400
200
300
250

0
0
0
50
0
0
0
0
0
0
0
0
0
0
0

Order
required
TRUE
FALSE
FALSE
TRUE
FALSE
TRUE
FALSE
FALSE
TRUE
FALSE
FALSE
TRUE
FALSE
FALSE
FALSE

RN 2
53

17
73

61

99

Lead No. of
time stockout
2
1
2
2
3
-

150
250
300
0
50
0
200
250
50
300
250
150
200
300
250

Holding
cost

Ordering
cost

Stockout cost

RM 0.00
RM 50.00 RM 750.00
RM 0.00
RM 0.00
RM 1,250.00
RM 0.00
RM 0.00
RM 1,500.00
RM 25.00 RM 50.00 RM 0.00
RM 0.00
RM 0.00
RM 250.00
RM 0.00
RM 50.00 RM 0.00
RM 0.00
RM 0.00
RM 1,000.00
RM 0.00
RM 0.00
RM 1,250.00
RM 0.00
RM 50.00 RM 250.00
RM 0.00
RM 0.00
RM 1,500.00
RM 0.00
RM 0.00
RM 1,250.00
RM 0.00
RM 50.00 RM 750.00
RM 0.00
RM 0.00
RM 1,000.00
RM 0.00
RM 0.00
RM 1,500.00
RM 0.00
RM 0.00
RM 1,250.00
Total inventory cost of 15 weeks :

Total
inventory cost
RM 800.00
RM 1,250.00
RM 1,500.00
RM 75.00
RM 250.00
RM 50.00
RM 1,000.00
RM 1,250.00
RM 300.00
RM 1,500.00
RM 1,250.00
RM 800.00
RM 1,000.00
RM 1,500.00
RM 1,250.00
RM 13,775.00