A store has collected the following information on one of its products: Demand = 6,760 units/year The

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Question:

A store has collected the following information on one of its products:

Demand = 6,760 units/year

The standard deviation of weekly demand = 18 units

Ordering costs = $40/order

Holding costs = $2/unit/year

Cycle-service level = 90%

Lead time = 3 weeks

Number of weeks per year = 52 weeks

If the firm uses the continuous review system to control the inventory, what would be its order quantity and reorder point?

Assume that the firm decided to change to the periodic review system to control the item’s inventory. The time between reviews, P, is calculated using the EOQ model. For the most recent review, an inventory clerk checked the inventory of this item and found 500 units. There were no scheduled receipts or backorders at the time.

Determine how many units should the firm order.