A large law firm uses an average of 40 boxes of copier paper a day. The firm operates 260 days a year. Storage and handlings costs for the paper are $30 a year per box, and it costs approximately $60 to order and receive a shipment of paper.
a. What order size could minimize the sum of annual ordering and carrying costs? What is the annual ordering cost and annual holding cost?
b. What is the average number of boxes on hand when the law firm uses EOQ model?
c. If the law firm decides to use EOQ mode, what is the order cycle? How many orders will the law firm place in a year?
d. Due to delivery restrictions, if the law firm has to order in multiples of 50 boxes. What is the new order quantity that you would recommend? What is the percentage increase in total annual costs from using the new order quantity compared to the original EOQ?
e. If the lead-time is 2 days, what is the re-order point?
f. Assume that the demand for boxes is variable. Using the following information find re-order point for variable demand and safety stock.
• Mean demand during lead-time = 50 boxes
• Standard deviation of lead-time demand = 10 boxes
• Acceptable stock-out risk during lead-time = 1%
• Lead-time demand is normally distributed and assumes lead time as 2 days