Problem 3: Your firm uses a continuous review system and operates 52 weeks per year. One of the items has the following characteristics: Demand () = 20,000 units/year Ordering cost () = $40/order Holding cost () = $2/unit/year Lead time () = 2 weeks Cycle-service level = 95% On-hand inventory = 1,040 units Demand Is normally distributed, with a standard deviation of weekly demand of 100 units.

a) Calculate the items EOQ. What is the average time, in weeks, between orders?

b) Find the safety stock and reorder point that provide a 95 percent cycle-service level?

c) For these policies, what are the annual costs of (i) holding the cycle inventory and (ii) placing orders?

d) A withdrawal of 15 units just occurred. Is it time to reorder? If so, how much should be ordered?

Problem 4: Suppose that your firm uses a periodic review system, but otherwise the data are the same as in Problem 3 above.

a) Calculate the that gives approximately the same number of orders per year as the EOQ. Round your answer to the nearest week.

b) Find the safety stock and the target inventory level that provide a 95 percent cycle-service level.

c) How much larger is the safety stock that with a system?