You are in charge of inventory control of a highly popular product retailed by your firm using a continuous review system. The firm operates 50 weeks per year. The following information is known about the product: average weekly demand (D) -400 units/week, ordering cost (S) - $40/order, holding cost (H) - $2/unit/year, lead time (L) - 2 weeks. Demand is normally distributed, with a standard deviation of weekly demand of 100 units.
a. Suppose the firm orders 800 units each time. What are the average annual costs of holding the cycle inventory? What are the average annual costs of placing orders?
b. Calculate the economic order quantity (EOQ). What is the average time, in weeks, between orders if lot size of the EOQ is used?
c. Find the safety stock and reorder point that provide a 96.5% cycle-service level. Hint: use standard normal distribution table in page 10