What are the safety stock and the reorder point

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Reference no: EM132301461

ABC has a demand (which is deterministic) for 27,000 DVD’s per month. The cost of a DVD is $2.30 and the holding cost is 30 percent of the cost of the product per year. The ordering cost is $700 per order. There are 350 days per year. The lead time is 7 days.

Annual ordering cost = D/EOQ*S = 324000/25639.6*700 = 8845.68

Annual holding cost = EOQ/2*H = 25639.6/2*0.69 = 8845.68

1. Suppose that the demand has now changed. It is probabilistic and follows a normal distribution with a mean demand during lead time of 23,000 DVD’s and the standard deviation of the demand during lead time is equal to 2,000 DVD’s. What are the safety stock and the reorder point if the company wants no more than a 10% chance of a stockout?

Reference no: EM132301461

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