Sam’s Cat Hotel operates 52 weeks per year, 6 days per week, and uses a continuous review inventory system. It purchases kitty litter for $11.70 per bag.
The following information is available about these bags:
Demand = 90 bags / week
Order cost = $54 / order
Annual holding cost = 27% of cost per unit
Desired cycle service level = 95 %
Lead time = 3 weeks (18 working days)
Standard deviation of weekly demand = 15 bags
Current on-hand inventory is 320 bags, with no open orders or backorders.
a) What is the EOQ ? [5 marks]
b) What would be the average time between orders, in weeks ? [3 marks]
c) What is the ROP ? [4 marks]
d) An inventory withdrawal of 10 bags was just made. – Is it time to reorder ? [3 marks]
e) If the store currently uses a lot size of 500 bags, determine the annual holding cost and the annual ordering cost of this policy ? [4 marks]
f) What would be the annual cost saved, if any, by shifting from the 500-bag lot size to the EOQ ? [6 marks]