A company begins a review of ordering policies for a sample of items. The company operates 52 weeks a year. The following are the characteristics of one item:
Demand = 3,380 units/year
Ordering cost = $50/order
Holding cost = $13/unit/year
Lead time = 3 weeks
Standard deviation of weekly demand = 16 units
Desired cycle service level = 98%
a) Calculate EOQ and use it to find the order interval (OI). Round the number to the nearest integer week. Hint: D/Q will give you the # of orders to place in a year; order interval = review interval.
b) Suppose the company just finished a periodic review and found 20 units of on-hand inventory, how many units should be ordered (i.e. amount to order)?
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