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Inventory management problem:EOQ, ROP, P model

A small copy center uses five 500 sheet boxes of copy paper a week. Experience suggests that usage can be well approximated by a normal distribution with a mean of 5 boxes per week and a standard deviation of one-half box per week. Two weeks are required to fill an order for letterhead stationary. Ordering cost is $ 2.00 and annual holding is 20 cents per box

A) determine the economic order quantity, assuming a 52 week year
B) If the copy center reorders when the supply on hand is 12 boxes, compute risk of a stockout.
c) If a fixed interval of seven weeks instead of ROP is used for reordering, what risk does the copy center incur that it will run out of stationary before this order arrives if it orders 36 boxes when the amount on hand is 12 boxes?

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Solution:
Demand per week (d)= 5 boxes
D=5*52 =260 boxes per annum
Standard deviation = 0.5boxes per week
LT = 2 weeks
Co =$2 per order
Ch=$0.20 per box per year
A) Determine the economic order quantity, assuming a 52 week year
EOQ = = 72.11 = 72 boxes
EOQ =72 boxes
B) If the copy center reorders when the supply on hand is 12 boxes, compute risk of a stock out.
Risk of stock out is the probability that the demand will be greater than 12 boxes during the lead time.
Re-order point = DDLT + Safety stock
? DDLT = demand ...

Solution Summary

Inventory management problem:EOQ, ROP, P model

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