Company X supplies the raw materials used by the A Company to produce its books. The A Company orders a fixed quantity of units from Company X when their inventory falls below a set amount. 

• Annual Demand (D) = 36,500 units per year (assume a 365-day year) 

• Ordering Cost (S) = $20 per order 

• Holding cost (H) = $2 per unit per year 

• Lead time (L) = 10 days 

• Cost per unit (C) = $15.00 

For parts a) and b) assume no safety stock and constant daily demand 

a) What is the reorder point (R) at which The A Company should order more products from Company X (that is, at what level of inventory should The A Company order more units)? 

b) What is the optimal order quantity (that is, how many units should The A Company order when they place their order for more units, to minimize total annual cost while meeting demand)? 

For part c), assume that The A Company DOES want to maintain a safety stock and daily demand is NOT constant. 

c) If The A Company wants to maintain an appropriate safety stock, and determines that average daily demand

 ( d ) has a mean of 100 units per day and a standard deviation during the lead time (σL) of 5, and wants to satisfy a 95% probability of not stocking out during the inventory lead time, what is the reorder point (R)? Compare the Reorder Points (R) you calculated in parts a) and c). Your reorder point with a safety stock in part c) should be higher than your reorder point in part a). If The A Company maintains a safety stock by increasing the reorder point (R) to the value you found in part c), should they also change the quantity ordered (Qopt)? Why or why not? (show formulas used)

Answer rating: 100% (QA)

a The reorder point R is the level of inventory at which The A Company should order more products from Company X The formula for the reorder point is ... View the full answer