# Question

One of the products sold by OfﬁceMax is a Hewlett-Pack ard DeskJet Z4480 printer. As purchasing manager, you have the following information for the printer:

Average weekly demand

(52 weeks per year):...... 60 printers

Standard deviation of weekly

demand:........... 12 printers

Order lead time:......... 3 weeks

Standard deviation of order

lead time:............ 0 (lead times are constant)

Item cost:........... $120 per printer

Cost to place an order:..... $2

Yearly holding cost per

printer: ........... $48

Desired service level during

reordering period:......... 99% 1z = 2.332

a. What is the economic order quantity for the printer?

b. Calculate annual ordering costs and holding costs (ignoring safety stock) for the EOQ. What do you notice about the two?

c. Suppose OfficeMax currently orders 120 printers at a time. How much more or less would OfficeMax pay in holding and ordering costs per year if it ordered just 12 printers at a time? Show your work.

d. What is the reorder point for the printer? How much of the reorder point consists of safety stock? For parts e and f, use the following formula to consider the impact of safety stock (SS) on average inventory levels and annual holding costs:

e. What is the annual cost of holding inventory, including the safety stock? How much of this cost is due to the safety stock?

f. Suppose OfficeMax is able to cut the lead time to a constant 1 week. What would the new safety stock level be? How much would this reduce annual holding costs?

Average weekly demand

(52 weeks per year):...... 60 printers

Standard deviation of weekly

demand:........... 12 printers

Order lead time:......... 3 weeks

Standard deviation of order

lead time:............ 0 (lead times are constant)

Item cost:........... $120 per printer

Cost to place an order:..... $2

Yearly holding cost per

printer: ........... $48

Desired service level during

reordering period:......... 99% 1z = 2.332

a. What is the economic order quantity for the printer?

b. Calculate annual ordering costs and holding costs (ignoring safety stock) for the EOQ. What do you notice about the two?

c. Suppose OfficeMax currently orders 120 printers at a time. How much more or less would OfficeMax pay in holding and ordering costs per year if it ordered just 12 printers at a time? Show your work.

d. What is the reorder point for the printer? How much of the reorder point consists of safety stock? For parts e and f, use the following formula to consider the impact of safety stock (SS) on average inventory levels and annual holding costs:

e. What is the annual cost of holding inventory, including the safety stock? How much of this cost is due to the safety stock?

f. Suppose OfficeMax is able to cut the lead time to a constant 1 week. What would the new safety stock level be? How much would this reduce annual holding costs?

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