A food company is attempting to set the customer service level (in-stock probability in its warehouse) for a particular product line item, with the following information:
Sales response rate = 0.2% change in revenue for a 1% change in the service level Trading margin = 0.75 per case
Annual sales through the warehouse = 80,000 cases
Annual carrying cost = 25%
Standard product cost = $10.00
Demand standard deviation = 500 cases per 1 week lead time
Lead time = 1 week
Determine the optimum service level for this item.