Safety Stock
6. High Tech, Inc. is a virtual store that stocks a variety of calculators in their warehouse. Customer orders are placed; the order is picked and packaged, and then shipped to the customer. A fixed order quantity inventory control system (FQS) helps monitor and control these SKUs. The following information is for one of the calculators that they stock, sell, and ship.
Average demand 12.5 calculators per week Lead time 3 weeks Order cost $20/order Holding cost $1.20/calculator/year Number of weeks 52 weeks per year Standard deviation of weekly demand 3.75 calculators SKU service level 90 percent
Current on-hand inventory 35 calculators
Scheduled receipts 20 calculators
Backorders 2 calculators
a. What is the Economic Order Quantity?
147.2 or 147 calculators
b. What is the total annual order and inventory-holding costs for the EOQ?
$88.2 + $88.2 = $176.40.
c. What is the reorder point without safety stock?
38 calculators
d. What is the reorder point with safety stock?
45.6 -> 46 calculators
e. Based on the previous information, should a fixed order quantity be placed, and if so, for how many calculators?
Inventory position (IP) is defined as the on-hand quantity (OH) plus any orders placed but which have not arrived (called scheduled receipts, SR), minus any backorders (BO), or
IP = OH + SR – BO = 35 + 20 – 2 = 53 [12.1]
FOQ Order Decision Rule: Place a new order for 147 calculators when the inventory position drops to or past the reorder point of 38 (w/o calculators) and 46 with safety stock. Since the IP is greater than either reorder point, do NOT place an EOQ = 147 calculators yet.
7. Crew Soccer Shoes Company is considering a change of their current inventory control system for soccer shoes. The information regarding the shoes is given below.
Average demand = 200 pairs/week Lead time = 3 weeks Order cost = $65/order Holding cost =
Average demand 12.5 calculators per week Lead time 3 weeks Order cost $20/order Holding cost $1.20/calculator/year Number of weeks 52 weeks per year Standard deviation of weekly demand 3.75 calculators SKU service level 90 percent
Current on-hand inventory 35 calculators
Scheduled receipts 20 calculators
Backorders 2 calculators
a. What is the Economic Order Quantity?
147.2 or 147 calculators
b. What is the total annual order and inventory-holding costs for the EOQ?
$88.2 + $88.2 = $176.40.
c. What is the reorder point without safety stock?
38 calculators
d. What is the reorder point with safety stock?
45.6 -> 46 calculators
e. Based on the previous information, should a fixed order quantity be placed, and if so, for how many calculators?
Inventory position (IP) is defined as the on-hand quantity (OH) plus any orders placed but which have not arrived (called scheduled receipts, SR), minus any backorders (BO), or
IP = OH + SR – BO = 35 + 20 – 2 = 53 [12.1]
FOQ Order Decision Rule: Place a new order for 147 calculators when the inventory position drops to or past the reorder point of 38 (w/o calculators) and 46 with safety stock. Since the IP is greater than either reorder point, do NOT place an EOQ = 147 calculators yet.
7. Crew Soccer Shoes Company is considering a change of their current inventory control system for soccer shoes. The information regarding the shoes is given below.
Average demand = 200 pairs/week Lead time = 3 weeks Order cost = $65/order Holding cost =