What is the annual cycle-inventory cost of current policy

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Reference no: EM132302749

A construction equipment dealer is facing a difficult inventory problem. Low inventory turnover is squeezing profit margins and causing cash-flow problems. One of the top-selling SKUs in the storage is a special small appliance. Sales are 18 units per week, and the supplier charges $60 per unit. The cost of placing an order with the supplier is $45. Annual holding cost is 25 percent of a product’s value, and the shop operates 52 weeks per year. Management chose a 390-unit lot size so that new orders could be placed less frequently.

A) Determine EOQ

B) What is the annual cycle-inventory cost of the current policy of using a 390-unit lot size? Would a lot size of 468 be better?

C) Suppose that the average demand is 18 units per week with a standard deviation of 5 units. The lead time is constant at 2 weeks. Determine the safety stock and reorder point if management wants a 90 percent cycle - service level.

Reference no: EM132302749

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