Homework Answers
Average weekly demand = 120 cartons/week
Cost = $ 30/carton
Safety Stock before the vendor annouced he is about to shift (4 week)= 120*4=480
Average Inventory level =
Where Q is the Current order quantity .
Q= 1150
Therefore average inventory level = (1150/2)+480= 1055
Average aggregated inventory value = 1055*30 = $31,650
Now as per the changes suggested:
New order quantity Q = 500
New safety stock (a week)= 120
Therefore new average inventory level = (500/2)+120 = 370 cartons
Therefore the average inventory level reduces by = 1055 - 370 = 685 or a reduction by 64.92%.
New aggregated inventory value = 30*370 = $ 11,100
Therefore the aggregated inventory value reduces by = $31,650-$11,100 = $20,550 or a reduction by 64.92%
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