A wholesale company is reviewing its inventory costs for a high volume item which has an annual demand of 72,000 units, with a per unit purchase price of $10. The ordering cost is estimated at $25, and the annual inventory carrying cost for the warehouse is computed at 30% of the price while the in-transit shipping factor is 13%. The in-transit shipping time is 14 days with a per unit transit cost of $1.50.
Forecasted average demand is 200 units per day with a standard deviation of the forecast error of 20 units per day. The average order lead time is 16 days with a standard deviation of order lead time of 3 days. A 98% service level is to be maintained. There are 360 days in a year.
1. What is the Annual Carrying Cost?
2. What is the Annual Ordering cost?
3. What is the cost of holding Safety Stock?
4. How much is the Annual In-transit Carrying Cost?
5. What is the Annual Transit Cost?
6. What is the Total Annual Cost?
7. If the Order Processing Time has a Standard Deviation of 1.5 days and the Transit Time has a Standard Deviation of 3 days, what is the Standard Deviation of the Lead Time?