Inventory Analysis

 

Inventory Analysis (10 Marks)

As purchasing manager, you have the following information about a printer that you sell:Average weekly demand 60 Printers(52 weeks per year) Standard deviation of weekly demand 12 PrintersOrder lead time 3 weeks 3 WeeksStandard deviation of order lead time 0 (Lead times are constant)Item cost £120 per printerCost to place an order $2 £2Yearly holding cost per printer £48Desired service level during reordering period 99% (z=2.33)
1. What is the economic order quantity for the printer?2. Calculate annual ordering costs and holding costs (ignoring safety stock) for the EOQ. What do you notice about the two?3. Suppose you currently orders 120 printers at a time. How much more or less would you pay in holding and ordering costs per year if it ordered just 12 printers
at a time? Show your work.4. What is the reorder point for the printer? How much of the reorder point consists of safety stock?For the below questions, use the following formula to consider the impact of safety stock (SS) on average inventory levels and annual holding costs:
Total Cost = Demand * Cost Per unit + (Annual Demand / Order Quantity)*Ordering Cost + (Order Quantity /2)*Holding Cost
a. What is the annual cost of holding inventory, including the safety stock? How much of this cost is due to the safety stock?
b. Suppose you are able to cut the lead time to a constant 1 week. What would be the new safety stock
c. How much would this reduce annual holding costs?

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