Appropriate continuous review and periodic review system

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Reference no: EM132247107

Your firm uses a periodic review system for all SKUs classified, using ABC analysis, as B or C items. Further, it uses a continuous review system for all SKUs classified as A items. The demand for a specific SKU, currently classified as an A item, has been dropping. You have been asked to evaluate the impact of moving the item from continuous review to periodic review. Assume your firm operates 52 weeks per year; the item's current characteristics are:

Demand (D) = 13,000 units/year

Ordering cost (S) = $135.00/order

Holding cost (H) = $3.50/unit/year

Lead time (L) = 8 weeks

Cycle-service level = 97 %

Demand is normally distributed, with a standard deviation of weekly demand of 78 units.

Calculate the item's EOQ.

EOQ = 1002 units. (Enter your response rounded to the nearest whole number.)

Use the EOQ to define the parameters of an appropriate continuous review and periodic review system for this item. Refer to the standard normal table when necessary.

Under a continuous review system, order 1002 units whenever the inventory level drops to 2415 units. (Enter your responses rounded to the nearest whole number.)

Under a periodic review system, order up to ____ units every _____ weeks. (Enter your responses rounded to the nearest whole number.)

Reference no: EM132247107

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