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In: Operations Management

The Jubail Bicycle Shop operates 7 days per week, closing 5 days each for Eid-ul-Fitr and...

The Jubail Bicycle Shop operates 7 days per week, closing 5 days each for Eid-ul-Fitr and Eid- Ul -Adah (this gives 355 working days in a year). The shop pays SAR 600 for a particular bicycle purchased from the manufacturer. The annual holding cost per bicycle is estimated to be 25% of the SAR value of inventory. The shop sells an average of 25 bikes per week. Frequently, the dealer does not have a bike in stock when a customer purchases it, and the bike is back ordered. The dealer estimates his shortage cost per unit back-ordered, on an annual basis, to be SAR 400 due to lost future sales (and profits) and the lead time is 2 weeks. The ordering cost for each order is SAR 300. Determine the following

a. Optimal order quantity

b.Shortage level (Maximum number of back orders)

c. Total minimum cost.

d. Optimal ordering policy

e. How long will there be stock out?

Solutions

Expert Solution

Weekly demand = 25 bikes

Operating days per week = 7

Working days per year = 355

Annual demand, D = 355*25/7 = 1268 units

EXCEL FORMULA:

keosha answered 3 months ago
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