Assume a fixed-Order Quantity system. A company makes 450 bicycles per month throughout the year. They purchase tires from a supplier with an ordering cost of $50 per order and carrying costs of $3 per tire. The lead time is 3 days. Clearly specify any reasonable assumptions that are necessary.
a. What is the EOQ?
b. What are the carrying costs, order costs and total costs at the EOQ?
c. How long is the order cycle?
d. Assuming a desired 98% service level and a standard deviation in lead time of 1⁄2 day, what is the reorder point?
e. Assuming a desired 95% service level and a standard deviation in usage of 75 tires per month, what is the reorder point?
Now assume a fixed-interval system for the company described above.
f. What is the optimal time interval for ordering?
g. What amount would be ordered if there are 400 tires in inventory and a 98% service level is desired?