Question

# Retailers Warehouse (RW) is an independent supplier of household items to department stores. RW attempts to...

Retailers Warehouse (RW) is an independent supplier of household items to department stores. RW attempts to stock enough items for a 90 percent service probability.

A stainless steel knife set is one item it stocks. Demand (1,800 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 \$5. RW figures that holding inventory in stock and paying for interest on borrowed capital, insurance, and so on, add up to about \$3 holding cost per unit per year.

Analysis of the past data shows that the standard deviation of demand from retailers is about four 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 sets

b. What is the reorder point? (Use Excel's NORMSINV() function to find the correct critical value for the given ?-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.)

 Reorder point sets

To be calculated:

(a) Economic Order Quantity (EOQ)

(b) Reorder Point

Given values:

Service level = 90%

Annual demand = 1,800 sets per year

Cost of ordering, Co = \$5

Holding cost, H = \$3 per unit per year

Standard deviation, SD = 4 units per day

Lead time, LT = 7 days

Solution:

(a) Economic Order Quantity (EOQ) is calculated as;

EOQ = SQRT (2*D*Co) / H

where,

D = Annual demand

Co = Cost of ordering

H = Holding cost

EOQ = SQRT (2 x 1800 x 5) / 3

EOQ = SQRT (6000)

EOQ = 77.46 or 77 sets

EOQ = 77 sets

(b) Reorder point is calculated as;

R = dL + [z x (d) x SQRT (L)]

where, d = daily demand

z = z-value

(d) = Standard deviation in demand

Using Excel’s NORMSINV() function, z-value for 90% service level is computed as;

NORMSINV (0.90) = 1.28

z = 1.28

Daily demand, d = (1800/365) = 4.93151

Putting the given values in the above formula, we get;

R = dL + [z x (d) x SQRT (L)]

R = (4.93151 x 7) + [1.28 x 4 x SQRT (7)]

R = 34.52057 + 13.54625

R = 48.06682

Reorder point = 48 sets

#### Earn Coins

Coins can be redeemed for fabulous gifts.

##### Need Online Homework Help?

Most questions answered within 1 hours.

##### Active Questions
• Manufacturing companies strive to maintain production​ consistency, but it is often difficult for outsiders to tell...
• There is a difference between statistical probability and theoretical probability. The theoretical probability of rolling a...
• In a small struggling technology company, the employees are aware that processes and structures must change...
• On June 30, 2018, Blue, Inc. leased a machine from Large Leasing Corporation. The lease agreement...
• You are on a mountain and see three other mountain tops that create a polygonal valley....
• Congressional Ethics: Identify one (1) member of Congress who has been charged with ethics violations in...