A local corner store sells paper towels to people in the surrounding communities. The demand for the towels has been increasing and management needs to ensure that enough towels are available to meet the increasing demand. The annual demand for the towels is 52,500 towels. The store operates 350 days per year.
The following information is also available about the product.
The cost of each towel .............................$20
Ordering costs...........................................$200 per order
Annual holding costs per unit..................10% of the costs per unit
Desired cycle service level ....................... 95%
Lead time:................................................... 5 days
Daily demand is normally distributed with a standard deviation of 15 units.
95% service level is equivalent to 2 standard deviations i.e. Z = 2
Current on-hand inventory is 800 units, with no open orders or backorders.
i. Calculate the EOQ?
ii. Calculate the number of order placed per year?
iii. Calculate the average daily demand.
iv. Calculate the average time between orders
v. Calculate the ROP?
vi. An inventory withdrawal of 200 units was just made. Is it time to reorder given the reorder point?
vii. If the store currently uses a lot size of 4000 units, determine the annual holding cost and the annual ordering cost of this policy?
viii. What would be the annual cost saved, if any, by shifting from the 4000-unit lot size to the EOQ?