Daily Demand for Packages of Five Videotapes at a Warehouse

question 53

Essay

Daily demand for packages of five videotapes at a warehouse store is found to be normally distributed with mean 50 and standard deviation 5.When the store orders more tapes,the ordering cost is $42 and the orders take four days to arrive.Each pack of tapes costs $7.20,and there is a 24% annual holding cost for inventory.Assume the store is open 360 days a year.
a.What is the EOQ?
b.If the store wants the probability of stocking out to be no more than 5%,and demand each day is independent of the day before,what reorder point should be set?
c.How much of your reorder point in part b)is safety stock?

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Definitions:

Chase Strategy

A management approach where production meets the exact demand for goods, reducing inventory costs by producing only what is needed.

Aggregate Planning

A process in supply chain management that develops, analyzes, and maintains a preliminary, approximate schedule of the overall operations of an organization.

Overtime

Additional hours worked by an employee beyond their normal working hours, typically compensated at a higher pay rate.

Subcontracting

The practice of hiring an outside party to perform services or create goods that are typically done in-house.