The manager of the local store of a national home improvement chain is studying their inventory system. He has chosen one high volume product as the first product to examine. The historical supply and demand data for this item has indicated a constant lead time of 12 days. Demand per day (d) is normally distributed with a mean demand of 2000 per day and standard deviation of 250 per day. He plans to set the in-stock probability (or service level) for this item at 80% during lead time. The ordering cost for this item is $500 per order. The product cost is $10 per unit. The annual inventory carrying cost is 25% of the item cost per year. The store operates 300 days a year. The manager decides to use the fixed quantity system (reorder point and economic order quantity). Based on the information provided, answer the following questions.
1. What is the safety stock level for this item? Round your answer to the nearest integer. (Note: use “NORMSINV” function in Excel to find the accurate z value.)
2. What is reorder point? Round your answer to the nearest integer.
3. What is the economic order quantity? Round your answer to the nearest integer.
4. Using your rounded answer from last question (question 3), how many orders will be placed per year under the policy you find? Round your answer to the nearest integer.
5. Using your answers of safety stock in question 1 and EOQ in question 3, what is the average inventory level under the order policy you find (including cycle inventory and safety inventory)? Round your answer to the nearest integer.
6. What is the annual ordering cost? Note: use your answer from question 4. Round your answer to the nearest integer.
7. Using your answer from question 5, what is the annual inventory carrying cost including both cycle inventory and safety inventory? Round your answer to the nearest integer.
8. Based on your answers to question 6 and 7, what is the total annual inventory cost? Round your answer to the nearest integer.