Bolden foods holds a lemon juice product in one of its warehouses. the company holds so much inventory of this product that it would not run out of the product for as long as four years. The service level of the product was set in excess of 99 percent. Although this was one of the company's high volume products, the question was whether the stock level needed to be set to high.

The general feeling in the company was that a 0.1 percent change in sales would occur for each 1 percent change in service level. The warehouse replenished retail stores on the weekly basis so that the customer service level could be defined as the probability of being in stock during the warehouse replenishment lead-time. The trading margin (markup) was $ .55 per case with annual sales through the warehouse of 69.904 cases. The standard cost per case was $5.38 and the annual inventory carrying cost was estimates at 25 percent. The replenishment lead time was one week, with average weekly sales of 1,152 cases and standard deviation of 300 cases.

What is the optimum service level in this situation?