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Sam's Cat Hotel operates 51 weeks per year, 6 days per week. It purchases kitty litter for $6.50 per bag. The following information is available about these bags: ≻Demand = 70 bags/week ≻Order cost = $75/order ≻Annual holding cost = 22 percent of cost ≻Desired cycle-service level=99 percent ≻Lead time = 1 week(s) (6 working days) ≻Standard deviation of weekly demand = 7 bags ≻Current on-hand inventory is 200 bags, with no open orders or backorders. Suppose that Sam's Cat Hotel uses a P system. The average daily demand, d, is 12 bags (70/6), and the standard deviation of daily demand, Standard Deviation of Weekly Demand Days per Week, is 2.858 bags.
Current on-hand inventory is 320 bags, with no open orders or backorders.
Required:
a. What is the EOQ? What would the average time between orders (in weeks)?
b. What should R be?
c. An inventory withdraw of 10 bags was just made. Is it time to reorder?
d. The store currently uses a lot size of 500 bags (i.e., Q=500). What is the annual holding cost of this policy? Annual ordering cost? Without calculating the EOQ, how can you conclude lot size is too large?
e. What would be the annual cost saved by shifting from the 500-bag lot size to the EOQ?
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