Question: Lucy opens a pump store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers

Lucy opens a pump store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory-control methods, such as using a fixed-order quantity (FQS) system. The FLUVAL 303 Pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. You collect the following data with respect to this pumps sales.

z = 1.75 for 96% service level.

Demand 5 units pw. Order cost = $40/order. Item cost = $80/pump. inventory holding costs = 15% year. store open 50 weeks a year. Lead time = 3 weeks. std. deviation in weekly demand = 6. Service level = 96%

What is inventory-carrying (holding) cost per pump per year?

What is the economic order quantity?

What is the average number of orders per year if using the EOQ?

What is the reorder point without safety stock?

What is the safety stock quantity?

What is the reorder point with safety stock?

If the current order quantity used by Lucy is 20 pumps per order, how much money can she save by adopting an EOQ ordering policy?

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