Given the following information, determine an inventory management system for an item in demand 50 weeks/year.
Item Cost $10
Order Cost $250
Annual Holding Cost $3.33/unit
Annual Demand 25,750
Weekly demand 515
Std Dev of Demand 25/week
Lead Time 1 week
Std Dev of Lead Time 0.1 week
Service Level 95%
a. State the order quantity and re-order point
b. Determine the annual holding and order costs
c. If a price break of $50/order was offered for orders over 2000 units, should you plan on 2000 unit orders?
Solution depicts the methodology to find EOQ, safety stock and inventory costs in the given case.
Inventory Management: Calculating Safety Stock, Re-Order point, EOQ, Average Inventory, and Total Inventory Cost
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
(d) Average inventory level
(e) Annual total inventory cost