What economic order quantity

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Reference no: EM132205203

You have just been hired by Pumper's, the pump manufacturer from previous weeks, to help them improve their inventory management.

The managers have told you that your first priority should be to oversee the inventory control of a specific item, which has just seen a large increase in price. Since last year, the supplier of the item has been acquired by a competitor and increased the prices for certain items, including this one. As a result, in this year's contract, the item is purchased at $12 per item.

Pumper's is currently using an (s,Q) policy for replenishment of the item, where Q is found using the EOQ model. The annual demand for the item is 2,700 units per year and the forecast for the next year shows an RMSE of 245 units. The ordering cost is $8 per order. The current lead-time is constant at 7 weeks. The holding cost is 20% per year, and for each unit short there is a penalty cost of $5. The Pumper's takes ownership of the stock only when it arrives at its location. In your calculations, assume 50 weeks per year.

We recommend that you use a spreadsheet for your calculations!

Calculate the parameters that should be used with the current inventory policy, using this year's purchase cost for the item ($12)? Round your answer to the closest integer.

What reorder point, s, should you use? What economic order quantity, Q, should you use?

Reference no: EM132205203

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