Alice opens an aquarium 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) and/or fixed-order period (FPS) systems.

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 pump’s sales.

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

b. What is the economic order quantity ?

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

d. What is the reorder point without safety stock?

e. What is the safety stock quantity?

f. What is the reorder point with safety stock?
g. If the current order quantity used by Alice is 20 pumps per order, how much money can she save by adopting an EOQ ordering policy?

Transcribed Image Text:

Demand = five units week Order cost = $40/order Item cost = $80/pump Store open 50 weeks/year Lead-time = three weeks Std. deviation in weekly demand = 6 Inventory-holding cost = 15 Service level = 96 percent percent year