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Inventory Management: Safety Stock, Re-Order, EOQ

The average demand faced by a retailer in the past is 200 units/day with a standard deviation of daily demand of 15 units/day. The fixed cost to order is $1,000, and the product cost is $50 per units. The daily holding cost is 20% of the product cost. The lead time is 6 days.

Given that the retailer wishes to maintain a service level of 86%, calculate the:
(a) Safety Stock
(b) Re-order point
(c) EOQ
(d) Average inventory level
(e) Annual total inventory cost

Solution Preview

First, analyze the information given in the problem.

This is an inventory management problem. It is very likely that you are being asked to solve the EOQ (Economic Order Quantity) and other variables related to that.

The formula for EOQ is
Q* = EOQ= square root of [ (2*D*S)/H ]
Q* = Optimum number of pieces per order = EOQ = Economic Order ...

Solution Summary

This solution shows the detailed calculations for optimal order quantity using the Economic Order Quantity formula, taking into account a safety stock consideration and inventory levels.