Value Electronics has a yearly demand of 100,000 units for their tablet. The ord
ID: 2741754 • Letter: V
Question
Value Electronics has a yearly demand of 100,000 units for their tablet. The order processing cost per order is $2,000, and inventory holding cost is $100/item/year. They have opted for the reorder point system, and it has two options for transportation: by truck and by rail. Truck transportation takes 1 week, while rail transportation takes 2 weeks of lead time. Truck transportation costs $2 per tablet, while by rail the transportation cost is $1 per tablet. It is the policy of Value Electronics to hold enough inventories to cover demand for twice the lead time.
Calculate the safety stock for the rail scenario.
Explanation / Answer
Safety stock = Annual Daily usage x Lead Time
= 100000/365 x 2 x 7
= 3836 units
According to company policy
3836 x 2 = 7672 units as its policy of Value Electronics to hold enough inventories to cover demand for twice the lead time
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