Bell computers purchases IC chips from a supplier at $350/chip. The holding cost has been estimated to be 10% of purchase price. It has estimated that Bell will need 4800 chips per year. Bell operates 250 day per year. The company wants to maintain a service level of 95%.
Data from supplier:
The cost placing an order is $120/order. The supplier promises an average lead time of ten days with a standard deviation of 2.5 days. Based on past Bell has estimated that daily demand during lead time is normally distributed with a mean of 19.2 and a standard deviation of 4.5.
The supplier has promised the following discount schedule if Bell orders larger quantities:
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Vendor 1
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Quantity
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Discount
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1-599
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0%
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600-1199
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2%
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1200+
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3%
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- What is the Economic order quantity?
- What is the safety stock?
- What is the reorder point?
- What is the total cost including cost of purchasing the parts.