Problem
A. Black Diamond Manufacturing Company operated their inventory replenishment process utilizing the economic order quantity and re-order point methodology. The supply chain team has provided the following key data to calculate the newest EOQ order quantity and re-order point (ROP):
Item Number 621249 - PSV Valve:
Annual demand in units = 10,000
Estimated internal ordering cost per order = $75.00
Cost per unit = $1,500
Estimated internal inventory carrying cost = 15%
Suppler lead time (T) = 10 days
Safety stock = 200 units
B. For a perpetual review system, calculate the re-order point where the average performance cycle length (T) equals 20 days.
C. Calculate each metric and show the appropriate calculations.
D. Discuss the challenges of using the EOQ concept from an assumption perspective.