Question

Using a computerized Inventory Management System, a Paint Supply Store franchise continuously monitors the inventory of all the paint located at each of their 15 stores and their distribution warehouse. The Paint Supply Store franchise sells an average of 64 gallons of Green Paint every week (for 52 weeks per year). They purchase Green Paint from their supplier at a price of $3.50 per gallon. [The company does not hold Safety Stock] It takes 2.25 weeks to receive an order from the supplier. Administrative costs for Ordering paint have been estimated to be $30 per order. Holding Costs = 35% of the purchase price per gallon per year. At what inventory level should the company place an order? Reorder Point, ROP = dL + SS Service Level z Value 99.99% 3.719 d = Average Demand Rate per Time Period 99.90% 3.090 D = Demand Rate per Year 99.00% 2.326 L = Average Lead time (time periods) 95.00% 1.645 90.00% 1.282 SS = Safety Stock = z Odl 85.00% 1.036 Odl Lok 80.00% 0.842 (Assuming Lead Time is constantas in Periodic review) og = Standard Deviation of the demand z = Number of Standard deviations corresponding to a service level Q = Order Quantity Average Inventory Level = Q/2 + SS H = Holding Cost Per Year Per Unit S = Ordering/Setup Cost Per Order Total Annual Inventory Cost = (*)h + @)s +H(SS) Total Annual Inventory Co Economic Order Quantity, EOQ Time Between Orders = TBO = 0 A. 144 gallons of paint B. 3744 gallons of paint

Answer 1

Answer:

The Inventory level at which average company should place an order is the Reorder Point (ROP).

ROP = d*L + SS

Where,

d = Average Demand rate per time period = 64 gallons per week

L = Average Lead Time (time periods) = 2.25 weeks

SS = Safety stock = 0

ROP = d*L + SS

=64*2.25

ROP = 144 gallons of paint

Inventory level at which average company should place an order = 144 gallons of paint