S tandard d eviation
o f weekly d emand
SKU service level
9 0 p ercent
C urrent o n-hand
3 5 calculators
2 0 c alculators
Exhibit 12.13 ABC D ata f or Problem 3
a. What is t he Economic O rder Q uantity?
b. What is the t otal a nnual o rder a nd i nventoryholding costs for the EOQ? c. What is t he reorder p oint w ithout s afety stock?
d. Whatis the reorder point with safety stock?
e. Based o n t he previous information, s hould a fixed
o rder q uantity be placed, a nd i f so, for h ow m any
c alcula to rs ?
7. Crew Soccer Shoes Company is considering a change o f
their current inventory control system for soccer shoes.
The information regarding t he shoes isgiven below.
Average demand = 2 00 p airs/week
Lead t ime = 3 w eeks
O rder c ost = $ 65/order
4. MamaMia's Pizza purchases its pizza delivery boxes
f rom a p rinting supplier. M amaMia's delivers on
average 2 00 pizzas each m onth (assume deterministic
demand). Boxes cost 2 0 cents each, a nd e ach o rder
c osts $ 10 t o process. Because o f limited storage
space, the manager w ants t o c harge inventory hold
ingat 3 0 p ercent o f the cost. The lead time is 7 days,
a nd t he restaurant is open 3 60 days per year, assum
ing 3 0 days per m onth. D etermine the economic or
der quantity, reorder p oint a ssuming no safety stock,
nurnber o f o rders per year, a nd t otal annual cost.
5. Refer to the situation in Problem 4. Suppose the
manager o f M amaMia's c urrent o rder q uantity is
2 00 boxes. H ow m uch c an be saved by a dopting a n
E OQ versus their c urrent Q = 2 00?
6. H igh Tech, Inc. is a v irtual s tore t hat s tocks a variety o f c alculators in t heir warehouse. C ustomer orde.rs
are placed, the o rder is p icked and packaged, and
then shipped to the customer. A fixed o rder q uantity
inventory control system (FQS) helps m onitor a nd
control these SKUs. The fonowing i nformation is for
one o f the calculators t hat t hey stock, sell, and ship.
Average d emand
1 2.5 c alculators p er w eek
O rder c ost
H olding c ost
N umber o f w eeks
5 2 weeks per year
P art 3 ; M anaging O perations
H olding c ost = $ 4.00/pairiyr
D esired service level = 9 5 p ercent
S tandard d eviation o f weekly d emand
N umber o f weeks p er y ear"" 5 2
T he c ompany decides to use a fixed o rder q uantity
system. W hat is t he economic o rder q uantity? W hat
s hould be the reorder p oint t o have a 95. p ercent
service level? Explain h ow t he system will operate,
8. Tune Football Helmets C ompany is c onsidering
changing its c urrent i nventory c ontrol system for
football helmets. The information regarding the
helmets is given below.
2 00 units/week
O rder c ost = $ 60/order
H olding c ost = $ 1.50/unit/yr
Desired service level
9 5 percent
Standard deviation o f w eekly d emand
N umber 6 f weeks p er y ear
C ompute T a nd M for a fixed p eriod i nventory
system model with and w ithout safety stock.
Explain h ow t his s ystem w ould o perate.
9. Suppose t hat a n industrial chemical costs $5/lb, an
nual d emand is 1 ,200 Ib, the o rder c ost f rom t he su p plier is $ 40, inventory-holding cost ra te is 1 8 percent,