Solve the following problem:
Q: Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year.
| Item cost |
$ |
10.00 |
|
Standard deviation of weekly demand |
25 |
per week |
| Order cost |
$ |
250.00 |
|
Lead time |
1 |
week |
| Annual holding cost (%) |
|
33 |
% of item cost |
Service probability |
95 |
% |
| Annual demand |
|
25,750 |
|
|
|
|
| Average demand |
|
515 |
per week |
|
|
a. State the order quantity and reorder point. Use Excel's NORMSINV() function to find the correct critical value for the given a-level.
b. Determine the annual holding and order costs.
c. Assume a price break of $50 per order was offered for purchase quantities of 2,000 or more units per order. If you took advantage of this price break, how much would you save annually?