Using the data presented in the case, identify the inventory parameters for this manufacturer. Specifically, quantify the following parameters and, if needed, explain your reasoning$/$assumptions for parts A$7$X$32$Y and TD$674$G$4$:

Order cost: this is the fixed$/$set$-$up ordering cost per order.

Response:

Order Cost $($S$)$ is the fixed cost irrespective of the quantity ordered. For both, A$7$X$32$Y and TD$674$G$4$ the order cost would be:

S$=$ $$100/$order$.$

As per the details in the case, the details do not differentiate order cost between parts A$7$X$32$Y and TD$674$G$4.$

Holding cost $($make sure to take note of the time unit$)$: this is the "unit" inventory holding cost. Note that in this case opportunity cost of tied$-$up capital, insurance, as well as obsolescence contribute to the inventory holding cost.

Response: Given Data

Cost of Capital$=10\%$

Property Tax and Insurance $=4\%$

Obsolescence cost is $$500,000/$year$.$

Part Number A$7$X$32$Y

Unit Cost

$ $5\mathrm{.}98$

Cost of Capital

$0\mathrm{.}10$

Insurance and taxes

$0\mathrm{.}04$

Annual Obsolescence Cost

$ $500,000$

Stock Keeping Units $($SKU$)$

$36,000$

Inventory investment $/$Total Inventory Value

$$100,000,000$

Obsolescence Cost Per unit

$ $13\mathrm{.}89$

$=$ Annual Obsolescence Cost $/$ SKUs

Holding cost $\%$

$0\mathrm{.}14$

Holding Cost Per Unit

$ $14\mathrm{.}73$

$=$ Unit Cost x $($Cost of Capital rate $+$ Insurance & Tax rate$)+($Obsolescence cost $/$unit$)$

Average weekly demand

The standard deviation of weekly demand

Service level.

What is your hypothesis on the distribution of weekly demand? Would normal distribution be reasonable here?

$($Cassie$)$

#$2$ Calculate the optimal order quantity. Notice that even though demand is variable, you may calculate the EOQ value with$$average demand$$and find the optimal order quantity. How does this order quantity compare to the current order quantities?