Your firm uses a continuous review system and operates 52 weeks per year. One of the SKUs has the following characteristics.
Demand (D) = 20,000 units/year
Ordering cost (S) $40/order
Holding cost (H) = $2/unit/year
Lead time (L) =2 weeks Cycle-service level = 95%
Demand is normally distributed, with a standard deviation of weekly demand of 100 units. Current on-hand inventory is 1,040 units, with no scheduled receipts and no backorders.
a. Calculate the item’s EOQ. What is the average time, in weeks, between orders?
b. Find the safety stock and reorder point that provides a 95 percent cycle-service level.
c. For these policies, what are the annual costs of
(i) Holding the cycle Inventory
(ii) Placing orders?
d. A withdrawal of 15 units just occurred. Is it time to reorder? IF so, how much should be ordered?