Your
firm uses a continuous review system and operates 52 weeks per
year. One of the SKUs has the following characteristics.
Demand
(D) = 20,000 units/year
Ordering cost (S) = $40/order
Holding cost (H) = $2/unit/year
Lead
time (L) = 2 weeks
Cycle-service level = 95 percent
Demand
is normally distributed, with a standard deviation of weekly demand
of 100 units.
Current on-hand inventory is 1,040 units, with no scheduled
receipts and no backorders.
a.
Calculate the item’s EOQ. What is the average time, in weeks,
between orders?
b.
Find the safety stock and reorder point that provide a 95 percent
cycle-service level.
c. For
these policies, what are the annual costs of (i) holding the cycle
inventory and (ii) placing orders?
d. A
withdrawal of 15 units just occurred. Is it time to reorder? If so,
how much should be ordered?