You have been hired by Target and one of your first assignments is to help with

Question

You have been hired by Target and one of your first assignments is to help with some inventory issues for patio furniture sets. Target is able to track their inventory on a unit-by-unit basis because of advanced point of sale scanners and other IT systems. You estimate demand to be 100,000 patio furniture sets per year and Target is open 365 days per year. Each time you place an order from the supplier, it will cost you $1,000 and the delivery lead time is 5 days. Your cost of purchasing patio furniture set is $300 per unit and holding/ carrying cost is estimated at $30 per unit per year.

What is the reorder point?

Select one: a. 39 b. 274 c. 685 d. 1370 e. 1414

What is the optimal order quantity?

Select one:

a. 333

b. 1370

c. 1414

d. 1826

e. 2582

Explanation / Answer

Given data -

Annual demand = 100000

Ordering costs = 1000 $

Delivery lead time = 5 days

Purchasing cost = 300 $/unit

Holding cost = 30 $/unit/year

Q1) Reorder point = Lead Time Demand+Safety Stock = (100000/365)*5+0 = 1370

Q2) Optimal order quantity Q = SQRT(2*D*S/H) = SQRT(2*100000*1000/30) = 2582

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