Question

1) Greg Fletcher, the materials manager at Easy Furniture Inc., is responsible for managing the inventory of writing desks. Greg isn't talkative about his inventory, but you have managed to extract the following information from him: It costs $35 to place an order. Each writing desk costs $31.33. Annual per unit holding cost is 30%of item value. Average daily demand is 100 writing desks. Standard deviation of demand during lead time is 51.96. Lead time to receive a writing desk from a supplier is 3 days. Target service level is 94%. Easy furniture Inc. is open 5 days a week, 52 weeks a year. The company follows a continuous review policy.

a) Please help Greg out by determining the order quantity, reorder point and the safety stock for writing desks.

Order Quantity=

Reorder Point=

Safety Stock=

Answer 1

Daily demand d= 100

Annual demand D = =100*5*52 = 26000

Ordering cost S= 35

Cost = 31.33

Holding cost H =30% = 0.3*31.33 = 9.399

Standard deviation = 51.96

Lead time = 3 days

Service level = 94%

Z = 1.55

Order quantity Q

Q = 440

Reorder point = Demand during lead time + Safety stock

Demand during lead time = dL = 100*3 = 300

Safety stock SS

Safety stock SS = 139.50

Reorder point = 300 + 139.50 = 439.5

Safety stock SS = 139.50