1. **Problem Statement:** DEF Enterprises uses 780 tons of a chemical bonding agent annually. Monthly demand fluctuates between 50 and 80 tons. The lead time for each order is one month, and the economic order quantity (EOQ) is 130 tons. We need to find: - The safety stock. - The reorder point in tons. 2. **Formulas and Important Rules:** - Safety stock is the extra inventory held to prevent stockouts due to demand variability during lead time. - Since lead time is one month, safety stock is based on the difference between maximum and average demand during lead time. - Average monthly demand $= \frac{780}{12} = 65$ tons. - Safety stock formula: $$\text{Safety Stock} = \text{Maximum Demand during Lead Time} - \text{Average Demand during Lead Time}$$ - Reorder point formula: $$\text{Reorder Point} = \text{Average Demand during Lead Time} + \text{Safety Stock}$$ 3. **Calculations:** - Maximum demand during lead time = 80 tons (given). - Average demand during lead time = 65 tons. Calculate safety stock: $$\text{Safety Stock} = 80 - 65 = 15 \text{ tons}$$ Calculate reorder point: $$\text{Reorder Point} = 65 + 15 = 80 \text{ tons}$$ 4. **Explanation:** - Safety stock of 15 tons ensures DEF Enterprises can meet demand fluctuations during the one-month lead time. - When inventory falls to 80 tons, DEF should place a new order to replenish stock before running out. **Final answers:** - Safety stock = 15 tons - Reorder point = 80 tons