Problem: A store has collected the following information on one of its products:
Demand = 10,000 units/year
Standard deviation of weekly demand = 25 units
Ordering costs = $30/order
Holding costs = $4/unit/year
Cycle-service level = 95% (z for 90% = 1.28)
Lead time = 2 weeks
Number of weeks per year = 50 weeks
A) If a firm uses the continuous review system to control the inventory, find the following:
Economic Order Quantity (EOQ):
Appropriate Safety Stock:
Reorder Point:
Annual Order Costs:
Annual Holding Costs:
Total Annual Costs (including safety stock):
B) If the firm decided to change to the periodic review system to control the item's inventory, find the following:
Review Interval (Time Between Orders):
Appropriate Safety Stock:
Target Inventory Level:
Annual Order Costs:
Annual Holding Costs:
Total Annual Costs (including safety stock):