Yourfirm uses a continuous review system and operates 52 weeks peryear. One of the SKUs has the following characteristics.
Demand(D) = 20,000 units/year
Ordering cost (S) = $40/order
Holding cost (H) = $2/unit/year
Leadtime (L) = 2 weeks
Cycle-service level = 95 percent
Demandis normally distributed, with a standard deviation of weekly demandof 100 units.
Current on-hand inventory is 1,040 units, with no scheduledreceipts and no backorders.
a.Calculate the item’s EOQ. What is the average time, in weeks,between orders?
b.Find the safety stock and reorder point that provide a 95 percentcycle-service level.
c. Forthese policies, what are the annual costs of (i) holding the cycleinventory and (ii) placing orders?
d. Awithdrawal of 15 units just occurred. Is it time to reorder? If so,how much should be ordered?
