Inventory Management
(a) George is attempting to perform an inventory analysis on his most popular products. Annual demand for this product is 5000 units; unit cost is K200,000; carrying cost is considered to be approximately 25% of the unit price. Order costs for his company typically run nearly K30,000 per order and lead times average 10 days.
(i) What is the economic order quantity?
(ii) What is the reorder point?
(iii) What is the total annual stocking cost?
(iv) What is the optimal number of orders per year?
(v) What is the optimal number of days between orders (assume 200 working days per year)?
(b) Daily demand for bread is normally distributed with a mean of 50 units and a standard deviation of 6. Supply is virtually assured with a lead time of 5 days. The cost of placing an order is K25,000 and annual carrying costs are 20% of the unit price of K2,000. A 90% service level is desired for the customers who place orders during the re-order period. Backorders are allowed. Once stocks are depleted, orders are filled as soon as the stocks arrive. There are no stocks out costs. We can assume sales are made over the entire year. What is the reorder point?