Determine the economic order quantity:
Determine the economic order quantity and the reorder point. Given
Annual demand (D) = 2,000 units
Average daily demand (d) = 2,000/365
Ordering cost (S) = Rs. 4.2 per order
Holding cost (H) = Rs. 1.75 per unit per year 13
Lead time (L) = 5 days
Cost per unit (C) = Rs. 10.75
What quantity must be ordered?
Solution
The optimal order quantity is
The reorder point is
R = d¯L = (2000 /365) (5) = 27.39 units
The inventory policy is as follows: while the inventory position drops to 28, place an order for 97 more.
The total annual cost will be
TC = DC + (D /Q) S + (Q/ 2) H
= 2000 (10.75) + (2000 /97) (5) + (97 /2) (1.75)
= Rs. 21687.875