A scissors making factory is considering their current inventory control system for scissors. The information regarding the scissors is given below.

Demand = 459 units/week

Lead time = 5 weeks

Cost (price) of scissors = 62.50

Annual inventory holding cost rate = 4%

Order cost = 45 per order

Required service level = 95% (Z=1.645)

Standard deviation of weekly demand = 35

Number of weeks per year = 51

The company decides to use a fixed order quantity system with EOQ. What would be the reorder point and the economic order quantity to ensure therequired service level?

Explain how the system will operate, i.e. the ordering decision rule.

EOQ = 2DC(o)/C(h)
C(o) =	45
C(h) =	2.50
D =	23,409	units per year
EOQ =	918	units will minimize the total cost
TC = 1/2*Q*C(h) + D/Q*C(o)
TC =	2,295
Reorder point = Demand rate x Lead time
r =	2,295	units

L = t*L =	78.26
Safety Stock
r = L+ Z*L=	2,424	units

To make sure the required service level (95%) is being met, each new order should now be placed as soon as the inventory level decreases to or below 2,424 units.

1. Are my calculations correct?

2. What is the ordering decision rule?