Compute the optimum ordering quantity for this item

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Reference no: EM1377811

Q. You are in charge of inventory control of a highly successful product retailed by your industry. Weekly demand for this item varies, with an average of 200 units also a standard deviation of 16 units. It is purchased from a wholesaler at a cost of Rs. 12.50 per unit. The supply lead time is 4 weeks. Placing an order costs Rs. 50 also the inventory carrying cost is 20% of the item's cost per year. Assume you operate for 52 weeks in a year.

a. Compute the optimum ordering quantity for this item?

b. Explain how many units of the item should be maintained as safety stock for 99% protection against stock outs during an order cycle?

c. If the ordering methodology is carried out after every 2 weeks compute the safety stock which would be necessary to maintain against stock outs also compare the same with part (b) above.

d. Compute the number of turns of inventory in both the cases of (b) also (c).

Reference no: EM1377811

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