Question

A retailer sells certain electronic accessories whose demand rate is constant across the year, including 32 GB USBflash drives. For these devices, the ordering cost is $65 and the lead time for receiving an order is 5 weeks. They are currently ordered on a weekly basis. Demand is predicted to remain steady at 42 devices per week, and the forecast CV is 14%. Each device costs the retailer $3.72 and the holding rate is 28% annually. Target cycle service level is 92%.

a. Calculate the preferred order up to level (OUL). Show all work.

b. If the manager switched to a fixed order quantity system with an optimal EOQ, what would be the optimal order quantity, reorder point, and how frequently would orders be placed? Show all work.

c. Do these results imply that weekly ordering is too frequent, too infrequent, or just about right?

Answer 1