What is the ROP with Safety Stock

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Reference no: EM131479443

Suppose you purchase a $4-per-unit part from a supplier with which you assemble red widgets. On average, you use 50,000 units of this part each year. The recommended selling price of the product is $5-per-unit. Every time you order this particular part, you incur a sizable ordering cost of $800 regardless of the number of parts that you order. Your cost of capital is 20% per year. How many parts should you purchase each time you place an order? If the lead time is 4 weeks, what is the re-order point (ROP) - assume no safety stock is used? If the standard deviation of the weekly demand forecast is 50 and you want to guarantee a 90% in-stock level, what is the ROP with Safety Stock?

Reference no: EM131479443

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