The purchasing agent responsible for ordering cotton underwear for Ace Retail Stores has come up with the following information:
Sol:
|
Maximum daily usage
|
100 packages
|
|
Average daily usage
|
80 packages
|
|
Lead time
|
9 days
|
|
Economic order quantity
|
3,500 packages
|
1. Compute the safety stock.
2. Calculate the reorder point.
|
Maximum daily usage
|
100 packages
|
|
Average daily usage
|
80
|
|
Excess
|
20
|
|
Lead time
|
X9 days
|
|
Safety stock
|
180 packages
|
2. Reorder point = Average usage during lead time + Safety stock
= 80 packages X 9 days + 180 packages = 720 + 180 = 900 packages
Harrington &Sons, Inc., would like to determine the safety stock to maintain for a product so
that the lowest combination of stockout cost and carrying cost will result. Each stockout will
cost $75; the carrying cost for each safety stock unit will be $1;the product will be ordered five
times a year. The following probabilities of running out of stock during an order period are
associated with various safety stock levels:
|
Safety Stock Level
|
Probability of Stock out
|
|
10 units
|
40%
|
|
20
|
20
|
|
40
|
10
|
|
80
|
5
|
Using the expected value approach, determine the safety stock level.