BCE Industries repairs high-end testing equipment using parts it purchases from the factory. One particular part, the X1000, has the following demand and lead time information:

Estimated annual demand for X1000:      1000 (20 per week X 50 weeks)

Item purchase cost:                                     $2,000 per unit

Typical lead time:                                         4 weeks, with no variability in lead time

Variance of weekly demand:                      16 units

Holding cost per unit per year:                   80% of item cost

Ordering cost:                                               $50 per order

Desired cycle service level:                        95% (z = 1.65)

What is the economic order quantity and reorder point for the X1000? How much of the reorder point represents safety stock? Limit your answer to the space below and round your final answers to the nearest whole number.

The factory that supplies BCE Industries has offered to keep X1000 inventory closer to BCE. The effect of this would be to reduce the lead time for the X1000 to 1 week.

In return, the factory wants to charge BCE $5,000 a year. What would be the impact on required safety stock and inventory holding costs if lead time goes to 1 week? Should BCE accept the factory’s offer or not? Justify your answer.