Inventory System Problem Parameters
Daily demand for an an inventory item is normally distributed with average value of 45 units per day
The standard deviation of daily demand is 3
The item is used 365 days per year
We buy the item for $60 per unit
Each time we order, we incur fixed ordering costs of $150 per order
Our annual carrying cost rate is 25%
When we order replenishment inventory, the order lead time is 5 days
The ordering policy currently being used is:
Whenever inventory position falls to R = 240 units, an order is placed for Q = 860 units

a)

Under the current daily demand pattern, what is the annual demand rate (D) ?

b)Under the ordering policy currently in use, what is the average number of orders per year and the average annual ordering cost?

c)Under the ordering policy currently in use, what is the average cycle stock inventory level and the average annual carrying cost?

d)Find the optimal order quantity for this item under the order point (or Q, R) ordering system.

e)Based on your answer to the previous question, what should we use as the time between orders (in days) if we were going to use a periodic review (P, T) system for this item?

f)Under the ordering policy currently in use, what is the service level?

g)What is the reorder point R and associated safety stock level if we want to establish a 99% service level for this item?

h)If we were going to use a periodic review (P, T) system for this item, what target inventory level T would be used to establish a 99% service level? What is the safety stock?