Crew Soccer Shoes Company is considering a change in its curent inventory contro

Question

Crew Soccer Shoes Company is considering a change in its curent inventory control system for soccer shoes. The information regarding the shoes is as follows: Average Demand: 250 pairs/week Lead Time: 3 weeks Order Cost: $75/order Unit Cost: $21.50 Carrying Charge Rate: 0.20 Desired Service Level: 95 percent Standard Deviation of Weekly Demand: 40 Number of weeks per year: 52 The company decides to use a fixed-order-quantity system. What is the economic order quantity? What should be the reorder point to have a 95 percent service level? Explain how the system will operate.

Explanation / Answer

Annual Demand (250 pairs/week * 52week) 13000 Ordering Cost $        75.00 Holding Cost ( $21.50 * 20%) $          4.30 EOQ = 2AO / H where A = Annual Demand O = Ordering Cost per order H = Holding Cost per unit per annum EOQ = 2AO / H = (2 * 13000 * 75) / 4.30 = 673.415 units or, 673 units b. Mean Demand 250 Standard Deviation of Daily Demand (SDd) 40 Lead Time (weeks) 3 Standard Deviation of Lead Time (SDl) = SDd * Lead Time = 40*3 = 69.28 69.28 Service Level Desired 95% Z Value at 95% 1.645 Safety Stock for 95% service level Z value * Standard Deviation (Demand Lead Time) (69.28 * 1.645) 114 Lead Time Demand ( Lead Time * Avg Demand) 750 Reorder Point = Lead Time Demand + Safety Stock 864

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