Question

The Discount Appliance Store uses a continuous review system (Q system).

One of the company's items has the following characteristics:

- Demand =10 units/week (assume 52 weeks per year)

- Ordering or Setup Cost (S)=$ 45) order

- Holding cost (H)=$12 unit/year

- Lead Time (L)=3 weeks (constant)

- Standard Deviation in Weekly Demand = 8 units

- Cycle-Service Level =70%

What is the EOQ for this item?

What is the desired safety stock?

What is the desired reorder point R?

What is the total annual cost?

Suppose that the current policy is Q=80 and R=150. What will be the changes in average cycle inventory and safety stock if your EOQ and R values are implemented?

Answer 1