Arrange Quid Styles . Convert to SmartArt- Paragraph Drawing Exercise A museum o

Question

Arrange Quid Styles . Convert to SmartArt- Paragraph Drawing Exercise A museum of natural history opened a gift shop which operates 52 weeks peryear. Top-selling SKU is a bird feeder. The average sales are 18 units per week with a standard deviation of 5 units The supplier charges $60 per unit Annual holding cost is 25% of a feeder's value. Ordering cost is $45 The lead time is constant at two weeks Management wants a 95% service level Determine The order quantity (EOQ), Safety stock (SS) Reorder point (ROP) Annual inventory cost (Note that carrying cost- H (Q/2 + SS)) . We rec?mmend ordering units every time the stock level hits . To achieve the service level of 95%, we shall keep units as safety stock. The annual average inventory cost is .

Explanation / Answer

Given -

Weekly Demand d = 18 units

Annual Demand D = 18*52 = 936 units

Standard Deviation ?d = 5 units

Cost per unit = 60 $

Holding costs H = 0.25*60 = 15 $

Ordering costs S = 45 $

Lead Time L = 2 weeks

Service level = 95 % => z = 1.645

a) Optimal order quantity EOQ = SQRT(2*D*S/H) = SQRT(2*936*45/15) = 75 units

b) Safety stock (SS) = z*?d*?L = 1.645*5*?2 = 11.63 $

c) Reorder point (ROP) = Average demand during Lead Time+Safety Stock = d*L+SS = (18*2)+11.63 = 47.63 $

d) Annual inventory cost = Cost of purchase+Carrying cost+Setup cost = c*D+H*(Q/2+SS) + (D/Q)*S = (60*936)+(736.95)+(936/75)*45 = 57460 $ (approx)

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