The manager at the local store of a national home improvement chain is studying
ID: 432200 • Letter: T
Question
The manager at the local store of a national home improvement chain is studying their inventory system. He has chosen one high volume product as the first product to examine. The historical supply and demand data for this item has indicated a constant lcad time of 16 days. Demand per day (d) is normally distributed with a mcan demand of 2000 per day and standard deviation of 240 per day He plans to set the in-stock probability or service level for this item at 95% during lead time. The ordering cost for this item 1s S500 per order. The product cost is $10 per unit. The annual inventory carrying cost is 30% of the item cost per year. The store operates 300 days a year. The manager decides to use the fixed quantity system reorder point and economic order quantity). Based on the information provided, answer the following questions. 1. What is the safety stock level for this item? Round your answer to the nearest integer. Your answer is accurate z value 2. What is reorder point? Round your answer to the nearest integer. Your answer is (1 point) Notc: use "NORMSINV" function in Exccl to find the (1 point) (1 point) 3. What is the economic order quantity? Round your answer to the nearest integer. Your answer is 4. How many orders will be placed per year under the policy you find? Round your answer to the ncarest integer. Your answer is 5. Using your answers of safety stock in question 1 and EOQ in question 3, what is the average inventory level under the order policy you find (including cycle inventory and safety inventory)? (1 point) Round your answer to the nearest integer. Your answer is (1 point) (1 point) 6. What is the annual ordering cost? Note: 7. Using your answer from question 5, what is the annual inventory carrying cost including both cycle inventory and safety inventory? Round your answer to the nearest integer. Your answer is use your answer from question 4. Round your answer to the nearest integer. Your answer is (1 point) 8. Based on your answers to question 6 and 7, what is the total annual inventory cost? Round your answer to the nearest integer. Your answer is (1 point)Explanation / Answer
d = 2000 per day
Lead time (LT) = 16 days
standard deviation (SD) = 240
Ordering cost (S) = 500
Product cost = 10$
Carrying % = 30
Carrying cost (H) = Product cost*carrying % - 10*30% = 3
z value for 95% service level is 1.645
1) Safety stock = z*SD*sqrt(LT) = 1.645*240*sqrt(16) = 1579
2) Reorder point = d*LT + Safety stock = 2000*16 + 1579 = 33,579
3) EOQ = sqrt(2*d*Number of operation days in a year*S/H) = sqrt(2*2000*300*500/3) = 14142
4) Number of orders = d*Number of operation days in a year/EOQ = 2000*300/14142 = 42
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