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Continuous review policy in managing its inventory

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Reference no: EM132297394

A small shop implemented a continuous review policy in managing its inventory with the given parameters for one item:

Annual demand: 15,000 units

Holding costs: 40% of purchase price per year.

Landed purchase cost: $10

Setup cost: $75 per order

Number of working days per calendar year: 250

Lead time: 3 days

Required service level: 95%

1. Determine the reorder point, assuming no safety stock. Round your answer to the nearest whole unit.

2. Based on the prior computations for optimal quantities, what is the cycle time between orders, with regards to working days? Round your answer to one decimal place in terms of working days. (Do not express the answer as a fraction of a year.)

3. The standard deviation of daily demand is 20 units.

Determine the safety stock level in units of product. Round your answer to the nearest whole unit.

4. The standard deviation of daily demand is 20 units.

Management realized that their new warehouse location reduces the consistency of on-time deliveries.  The average lead time remained the same, but a lead time variance of 2 was observed.

Refine the safety stock level in units of product to mitigate both lead time and demand uncertainties. Round your answer to the nearest whole unit.

Reference no: EM132297394

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