Puppy Food Inc. (PFI) sells a very popular blend of dog food. Demand for the dog food has a Normal distribution with a mean 220 bags per week and a standard deviation of 30 bags per week. PFI orders the dog food from Nutritious & Delicious Co.. The lead time L = 1 week. The effective lead time L+1 = 2 weeks. The shipping from Nutrition & Delicious Co. to PFI is free, there is no fixed ordering cost. The holding cost of the dog food is $0.75/bag/week. If a customer experiences stock out of the dog food in store, PFI offers to deliver the dog food to the customer’s home using free expedite shipping. This expedite shipping arrangement costs PFI $20/bag/week, which is considered as the unit backorder cost. Please use the information given to answer
Q1 to 26. Which of the following statement of risk pooling effect is CORRECT? Risking pooling effect improves the service level of the business by increasing the value of the critical ratio. Risk pooling effect improves the business’s profit by attracting more demand. Risk pooling effect reduces the inventory holding cost by reducing safety-stock. All of the above.