Determine the economic order quantity

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Reference no: EM133913808

Assignment:

A retailer purchases product to satisfy an annual demand that is normally distributed with a mean of 10,000 units and standard deviation of 8,000 units. Supplier replenishment leadtime is 2.5 weeks. The cost per item is $120, the inventory holding rate is 20%, and the order cost is $500 per order.

Answer the following:

a. Determine the economic order quantity. (Rounding is okay for this case).

b. What is the average number of times that they will place an order over a year?

c. Assume the retailer uses a (Q, R) system with Q equal to the EOQ. In addition, they use a service level of 95%. Determine the reorder point R.

d. Determine the units of cycle stock, pipeline stock, and safety stock.

e. Determine their average total annual inventory cost made up of order cost and inventory holding cost (don't include the purchase cost).

f. Determine the number of inventory turns and average days of inventory.

For problem 6, suppose the retailer sets their safety stock to 13 days of demand (rather than using the 95% service level). What would their effective service level be in this case?

Reference no: EM133913808

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