Audio-Video City (AVC), an electronic supply store, stocks and sells a particular brand of 8K Curve TVs. It costs the firm $612 each time it places an order with the manufacturer for the 8K 77” Curve TVs. The cost of carrying one 8K Curve TV in inventory for a year is $159. The store manager estimates the total annual demand for this type of 8K TVs will be 1744 units, with a constant demand rate throughout the year. Orders are received within minutes from a local warehouse of the manufacturer. The store policy is never to have stock-outs of the 8K TVs. The store is open for business every day of the year except Dr. King’s Birthday, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Determine:
Continuing from the previous problem, the manufacturer of 8K Curve TVs decided to close the local warehouse and ship their 8K Curve TVs directly from their overseas manufacturing facility. As a result, it takes 7 working days for the manufacturer to fulfill any customer order.
Optimal order quantity = [ 2 x demand per annum x cost per order / cost of holding one unit per year]^0.5
= [ 2 x 1744x612/159]^0.5
=115.86 =116 units
(ii)
SD during lead time = ( 14.44)^0.5 =3.8
Safety stock = z x SD of daily demand x ( lead time)^0.5
= 1.78x 3.8 x ( 7)^0.5 = 17.89 =18 units
Reorder point = demand during lead time + safety stock
= (1744/360) x 7 +18 =52 units
Cost of inventory = cost of holding + cost of ordering + cost of holding safety stock
= 116/2 x 159 + 612 x (1744/116) + 18x159 = 21285
Total cost = 21285 +750x1744 = 1329285
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