Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump's sales.
$\begin{array} { l l }
\text { Demand } = 10 \text { units per week } & \text { Store operates } 45 \text { weeks } / \text { year } \
\text { Order cost } = \$ 30 / \text { order } & \text { Lead time } = 3 \text { weeks } \
\text { Item cost } = \$ 80 / \text { pump } & \text { Standard deviation of weekly demand } = 4 \text { units } \
\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Desired service level } = 90 \text { percent }
\end{array}$
-If Kelly decides to use a fixed-period system (FPS), the fixed-order interval (T) based on store economics is:

Question

Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump's sales.
$\begin{array} { l l } 
\text { Demand } = 10 \text { units per week } & \text { Store operates } 45 \text { weeks } / \text { year } \
\text { Order cost } = \$ 30 / \text { order } & \text { Lead time } = 3 \text { weeks } \
\text { Item cost } = \$ 80 / \text { pump } & \text { Standard deviation of weekly demand } = 4 \text { units } \
\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Desired service level } = 90 \text { percent }
\end{array}$
-If Kelly decides to use a fixed-period system (FPS), the fixed-order interval (T) based on store economics is:

Quizplus · Accepted Answer

The fixed-order interval (T) is the time between orders. It is calculated as the lead time plus the safety stock divided by the average demand. In this case, the lead time is 3 weeks, the safety stock is 1.645 units (using the normal distribution and a service level of 90%), and the average demand is 10 units per week. Therefore, the fixed-order interval is 3 + 1.645 / 10 = 4.645 weeks. Since the store operates 45 weeks per year, the fixed-order interval must be less than or equal to 5 weeks.

Kelly Opens an Aquarium Store in a Lively Shopping Mall