Inventory Control Problem Johnson Corporation has the following information about a product (SKU) that it carries in stock: Average demand = 40 units per day The business year has 300 days Order lead time = 15 days Item cost = $50 per unit Ordering cost = $ 30 per order (regardless of the order size) Inventory annual carrying cost = 20% Standard deviation for demand during lead time = 100 units Desired cycle service level = 97.5% Using continuous review inventory policy (Q system).
1. What is the optimal order size for the company to minimize their annual inventory cost for this item?
2. What is the yearly average cycle inventory for this item?
3. How much safety inventory do they need to keep? What is the reorder point (ROP)?
4. Suppose the company uses a two-bin system to carry the inventory for this item. How much inventory should they vary in the secondary bin? How much should they carry in the first bin?
5. How much transportation inventory do they carry year-around?
6. How much total inventory do they carry for this item? What is the annual inventory keeping cost for this item?