Answer:
- Economic order quantity= 1406 units
- Safety Stock= 630 units
- Reorder Point= 14130 units
Explanation:
Given Demand D= 78,000units/year
Ordering cost S = $38.00/order
Holding cost H = $3.00unit/year
Average lead time = 9 weeks
Standard deviation of weekly demand = 120 units
a) Economic order quantity:
EOQ = \sqrt{(2*D*S)/H}
EOQ = \sqrt{(2*78000*38)/3}
1405.7 = <u>1406 Units</u>
b)<u>
Safety Stock:</u>
Weekly demand = 78000/52 =1500 units
Standard deviation of weekly demand = 120 units
Lead time is 9 weeks
Using the normsinv() in excel the Z value for the desired 96% service level is 1.75
Safety stock = z\sigma _{d}\sqrt{L}
= 1.75*120*\sqrt{9}
= 630 units
Reorder point = average lead time demand + safety stock
= lead time * weekly demand + saftey stock
= 9*1500 + 630
= 13500 + 630
Reorder point = 14130
