# Independent Demand Inventory

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## CHAPTER 6 Independent Demand Inventory

P-System: Fixed Period

The demand for a given type of socks at a Sporting goods store is 1,976 pair, the holding cost is \$0.50 per pair of socks per year, and the setup cost is \$20 per order. Lead time is 3 weeks, and 0″, = 4. A cycle-service level of 88 percent is desired.

Determine the period (P) and the target inventory (T).

Solution

We first calculate the economic order quantity as EOQ= flags = WELL-3M = «158,080 = 397.59 H \$0.50 which we roundup to 398.

Next, we calculate the period that best approximates this EOQ, using Equation 6. p P : Fag-Q
Dt 1,967 pairs of socks/year where Dr _, -~-52 weeks /yméaW-_r _ 38 pair of. socks/vs eek 398 Pa 38 _ 10.46 weeks which we round to the nearest integer, or 10 weeks.

Next, we determine the target inventory level, T, by first looking up the number of standard deviations of demand that corresponds to 88 percent. From the Appendix, we look for the value closest to 0.8800; there is a value of 0.8790 (21.17) and a value of 0.8810 (2 z 1.18), so we use 2 = 1.175 as a rough interpolation between the two values. We also use oM) = 010+?) : 01V??? : are 10 + 3 x 14.42.

T a 5“, + zap, : 38 pair of socks/week .. (10 + 3) + 1.175 .. 4 * mas 494 + 16.95 = 510.95 which we round up to 51 1.

1. The current order quantity for Paul’s Pasta Pin wheels is 200 boxes. The order cost is \$4 per order, the holding cost is \$0.40 per box per year, and the annual demand is 500 boxes per year.
a. Calculate the annual holding cost plus the annual ordering cost to get the total annual cost when using an order quantity of 200 boxes.
b. Calculate the EOQ and the total annual cost for this order quantity.
2. The current order quantity for Electric Powerbars is 100 bars. The order cost is \$10 per order, the holding cost is \$025 per bar per year, and the annual demand is 2,000 bars per year.

a. Calculate the annual holding cost plus the annual ordering cost to get the total annual cost when using an order quantity of 100 bars.

b. Calculate the EOQ and the total annual cost for this order quantity.

c. How many orders per year are necessary when Q = 100? How many orders per year are necessary for the EOQ in part b?

d. Graph the annual inventory cost (1C) using MS Excel. Show the holding cost, ordering cost, and total inventory cost as a function of. order size Q.

Last Updated on February 11, 2019 by Essay Pro