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Inventory Management

A store has collected the following information on one of its products (10 pts):

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):

Solution Summary

Solution contains calculations of Economic Order Quantity (EOQ), appropriate Safety Stock, reorder Point, annual Order Costs, annual Holding Costs and total Annual Costs (including safety stock):

$2.19