2. Periodic Review System (P-System) or Periodic Order Quantity (POQ) or Fixed I

Question

2. Periodic Review System (P-System) or Periodic Order Quantity (POQ) or Fixed Interval Reorder System or Periodic Reorder System. (10 Points)

Wood County Hospital consumes 1,000 boxes of bandages per week and the hospital operates 52 weeks per year.
The price of bandages (v) is $ 35 per box and the cost of holding one box for a year is 15 percent of the value of the material (r).
The cost of processing an order is $ 15.
Demand is normally distributed, with a standard deviation of weekly demand of 100 boxes (Sigma t).
The lead time is 2 weeks (L).
Cycle-service level is 97 percent.

A. What is the EOQ for this item?

B. What is the time between reviews or P in weeks? Please do not round the number.

C. What is the average demand during the production interval (Xbar P+L)?

D. What is the desired safety stock (SS)?

E. What is the target inventory level (T)?

F. What is the ordering cost at the lot size of EOQ?

G. What is the holding cost at the lot size of EOQ?

H. What the safety stock cost?

i. What is the total cost?

Explanation / Answer

Solution-

Since Chegg policy entitles me to solve first 4 subparts of a question, I will be solving Question a, b,c and d. and e as well. However, by looking at the solution of first 5 question, you will able to solve rest of the questions. Best of Luck

A. D = (1000 boxes/wk)(52 wk/yr) = 52,000 boxes

H = (0.l5)($35/box)=$5.25/box

EOQ = sqrt(2 * D * S / h) = sqrt(2*52000*15/5.25) = 545 boxes

B. Time between review should have been given in the question. It cannot be calculated from the data given in the question. As far as I know, P is given to be 2 weeks in the question itself.

C. Average demand during the production interval = Average Demand * (P + L) = 1000 * (2+2) = 4000

D. Safety stock = Z*std dev*sqrt(P*L)

Z for 97% service level= 1.88

std dev = 100 unites

P = L = 2 weeks

therefore, Safety stock = 1.88 * 100 * sqrt(2*2) = 376 units

E. target inventory level (T) = Average demand during the protection interval + Safety stock

= 4000 + 376 units = 4376 units

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