Assume the company operated 250 days per year, expects to use 120,000 units per year and uses a perpetual review inventory control system. Assume further they use Banner Freightways which has an average transit time of 3 days with a standard deviation of 2 days, and daily demand is normally distributed with a standard deviation of 50 units. The unit cost continues to be $480. The annual cost of carrying inventory has been recalculated to be 2% per month of the value of the part.
A) Calculate the Economic Order Quantity (EOQ)
B) Calculate the necessary safety stock to cover 98% of the replenishment cycles.
C) Assume North Eastern has an average lead time of 5 days with a 4 day standard deviation. How much lower should its rate be compared to Banner’s in order to offset the service differences between the two carriers?