A janitorial supply superstore buys 214 of their most popular cleaning iquid eac

Question

A janitorial supply superstore buys 214 of their most popular cleaning iquid each week for $11 each. Average cost of ordering and receiving a shipment is $6 per order. Holding cost is 1% of the price per month. The supplier lead time is 2.5 weeks. The store operates 50 weeks per year. Each order is revieved from the supplier in a single delivery and there are no quantity discounts.

What quantity should the store order with each order? (EOQ Formula)

How many times per year will the store order?

How man weeks will elapse between two consecutive orders?

What is the reorder point if the compnay wishes to carry a safety stock of 20 units?

What is the store's minimum total annual ordering and inventory carrying costs?

Explanation / Answer

Annual demand, D = 214*50 = 10700

Ordering and receiving cost, S = $ 6 per order

Annual Holding cost per unit = 11*1%*12 = $ 1.32

Lead time, L = 2.5 weeks

1) Optimal order quantity, Q = (2DS/H) = (2*10700*6/1.32) = 312

2) Number of orders per year = D/Q = 10700/312 = 34.3

3) Weeks between two consecutive orders = (Q/D)*50 = 1.46 weeks

4) Reorder point = Weekly demand * Lead time in weeks + Safety stock (ss) = 214*2.5 + 20 = 555

5) Minimu total annual ordering and inventory carrying cost = Ordering cost + holding cost of cycle stock + holding cost of safety stock (ss) = (D/Q)*S+(Q/2)*H+ss*H = (10700/312)*6+(312/2)*1.32+20*1.32

= $ 438.09

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