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Order Quantity

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2. A store has collected the following information on one of its products:
Demand = 6,760 units/year
Standard deviation of weekly demand = 18 units
Ordering costs = $40/order
Holding costs = $2/unit/year
Cycle-service level = 90% (z for 90% = 1.28)
Lead-time = 3 weeks
Number of weeks per year = 52 weeks

a. If the firm uses the continuous review system to control the inventory, what would be its order quantity and reorder point?
b. Assume that the firm decided to change to the periodic review system to control the item's inventory. The time between reviews, P, is calculated using the EOQ model.
For the most recent review, an inventory clerk checked the inventory of this item and found 300 units. There were no scheduled receipts or backorders at the time. Determine how many units the firm should order.

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Solution Summary

The order quantity in products are examined. Standard deviation of weekly demand are determined.

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Fixed Time Period Model with Safety Stock
b. Assume that the firm decided to change to the periodic review system to control the item's inventory. The time between reviews, P, is calculated using the EOQ ...

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