Inventory System Problem Parameters

Daily demand for an inventory item is normally distributed with average value of 38 units per day

The standard deviation of daily demand is 5

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 $125 per order

Our annual carrying cost rate is 25%

When we order replenishment inventory, the order lead time is 6 days

The ordering policy currently being used is:

Whenever inventory position falls to R = 260 units, an order is placed for Q = 720 units

1. Under the current daily demand pattern, what is the annual demand rate (D)?
2. Under the ordering policy currently in use, what is the average number of orders per year and the average annual ordering cost?
3. Under the ordering policy currently in use, what is the average cycle stock inventory level and the average annual carrying cost?
4. Find the EOQ for this item.
5. 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?
6. Under the ordering policy currently in use, what is the service level?
7. What is the reorder point R and associated safety stock level if we want to establish a 99% service level for this item?
8. f 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?