EOQ and ROP Application

Store manager Rosala has noted that the daily demand for the exclusive Motomami candles sold in her Fire Doll Artisan Chandlery located in downtown Chicago is 40 candles. Rosalia orders the candles from a vendor in quantities of 600 (lot size) at a time. The Lead Time for orders is 4 days.

Rosala uses a continuous review system (Q system) to manage the inventory relying on economic order quantity (EOQ) to decide how much to order and reorder point (ROP) to decide when to order.

1. How many times does Rosalia need to order the candles every year if the store is operational 350 days per year?

2. Determine the reorder point (ROP) assuming the daily demand is spread evenly (i.e., no safety stock).

3. Rosala notes that daily demand in reality is not certain. The demand has a standard deviation of 4 candles, calculate the safety stock if the store targets a 90% service level.

Note that the you can get demand during the lead time using the daily demand and lead time.

4. Rosala notes that daily demand in reality is not certain. The demand has a standard deviation of 4 candles, and the store targets a 90% service level.

Calculate the ROP (Reorder Point).