Replenishment cycles, Calculate the Economic Order Quantity

Replenishment cycles

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Reference no: EM131802806

Assume the company operated 250 days per year, expects to use 120,000 units per year and uses a perpetual review inventory control system. Assume further they use Banner Freightways which has an average transit time of 3 days with a standard deviation of 2 days, and daily demand is normally distributed with a standard deviation of 50 units. The unit cost continues to be $480. The annual cost of carrying inventory has been recalculated to be 2% per month of the value of the part.

A) Calculate the Economic Order Quantity (EOQ)

B) Calculate the necessary safety stock to cover 98% of the replenishment cycles.

C) Assume North Eastern has an average lead time of 5 days with a 4 day standard deviation. How much lower should its rate be compared to Banner’s in order to offset the service differences between the two carriers?

Reference no: EM131802806

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