A store has collected the following information on one of its products: Demand =
ID: 444975 • Letter: A
Question
A store has collected the following information on one of its products:
Demand = 4,500 units/year
Standard deviation of weekly demand = 12 units
Ordering costs = $40/order
Holding costs = $3/unit/year
Cycle-service level = 90% (z for 90% = 1.28
Lead-time = 2 weeks
Number of weeks per year = 52 weeks
a. If a firm uses the continuous review system to control the inventory, what would be the order quantity and reorder point?
b.The firm decided to change to the periodic review system to control the item’s inventory. For the most recent review, an inventory clerk checked the inventory of this item and found 300 units. There were no scheduled receipts or backorders at the time. How many units should be ordered? (HINT: Use the EOQ model to derive P, the time between reviews.)
Explanation / Answer
A.
Order quantity = {(2*D*S/H)}square root
= { (2*4500*40)/3) square root
= 346.4 or 346 units
Reorder =DL + Z = (4500/52)2+1.28(12 2)
= 173.08 +21.72
= 194.8 or 195 units
B.TBO(eoq) = EOQ/D(52 Weeks/year)
= 346.4/4500(52)
= 4.00 weeks
T =D(P+L)+Z =4500/52(4+2)+1.28(12)(4+2)
519.23+37.62
= 556.85 OR 557
557 order quantity = T-IP
= 557-300
= 257 units
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