Homework #$6$:$$ EOQ

Part I $$ Inventory Audit $-$ EOQ

Patriot Pharmacy is a pharmaceutical distributor in the Midwest that supplies nursing homes with thousands of pharmaceuticals.$$ Nick Hall, an MBA student, did a project for an Operations $/$ Supply Chain class that involved auditing a representative sample of their inventory.$$ To start, he chose just one item, Plavix, gathered data on it$,$ and compared their current policies and costs with his recommended one.$$ He would verify the data, and then collect information on about $30$ more items.$$ After analyzing their spreadsheets and having long discussions about their costs, here is the data he collected for the first item.

Plavix

$$ Demand $=1,964\mathrm{.}5$ units $/$ week

$$ Cost per unit $=$ $$3\mathrm{.}80$

$$ Cost of holding inventory $=20\%$ annually

$$ Fixed ordering cost $=$ $$16$

$$ Current order size $=1,000$

Questions

$($a$)$ What is the total relevant cost of inventory $($annual fixed cost of ordering $+$ annual holding cost$)$ for this item when using their current order size?

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$($b$)$ What is the EOQ?

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$($c$)$ How many orders per year would they place if they use the EOQ?

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$($d$)$ What is the average inventory if they use the EOQ?

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$($e$)$ What is the total relevant cost of inventory $($annual fixed cost of ordering $+$ annual holding cost$)$ when using the EOQ?

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$($f$)$ What is the cycle length $($in days$)$ if they use the EOQ?

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$($g$)$ What is the percent savings in total relevant cost if they change from their current order quantity to the EOQ?

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