Question

10. 150 points Problem 11-24 Retailers Warehouse (RW) is an independent supplier of household items to department stores, RW attempts to stock enough items for a 98 percent service probability A stainless steel knife set is one item it stocks. Demand (1.900 sets per year is relatively stable over the entire year. Whenever new stock is ordered, a buyer must assure that numbers are correct for stock on hand and then phone in a new order. The total cost involved to place an order is about $16. RW figures that holding inventory in stock and paying for interest on borrowed capital insurance, and so on. add up to about $14 holding cost per unit per year Analysis of the past data shows that the standard deviation of demand from retailers is about five units per day for a 365-day year. Lead time to get the order is seven days. a. What is the economic order quantity? (Round your answer to the nearest whole number) Economic order quantity tations. Round value b. What is the reorder point? Use Excel's NORMSINVO function to find the correct critical value for the given a level. Do not found interme to 2 decimal places and final answer to the nearest whole number) Reorder point References eBook & Resources Worksheet culty Challenge

Answer 1

The economic order quantity is found using the following equation

EOQ = 2 x annual demand X ordering cost holding cost

EOQ = 2 X 1900 x $16 $14

Economic order quantity = 66 sets

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b)

Reorder point = ( Average daily demand $\times$ lead time in days) + Z $\sigma$ _dLT

$\sigma$_dLT = Standard deviation of demand during lead time = Standard deviation of demand $\times$

Leadtime

$\sigma$_dLT = 5 units per day $\times$ $\sqrt{7}$

$\sigma$_dLT = 13.22875656

Average daily demand = ( 1900 $\div$ 365 )

Average daily demand = 5.205479452

Using the NORMSINV function in excel, the value of Z for a 98 percent service probability is obtained as

Critical value Z = 2.05

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Reorder point = 5.205479452 $\times$ 7 + 2.05 $\times$ 13.22875656

Reorder point = 64 sets