Scenario 9.7
You are the operations manager of a firm that uses the continuous-review inventory control system.Suppose the firm operates 52 weeks a year,365 days,and has the following characteristics for its primary item:
Demand = 25,000 units/year
Ordering cost = $30/order
Holding cost = $8/unit/year
Lead time = 2 weeks
Standard deviation in weekly demand = 100 units
A normal distribution table is appended to this exam.
-Use the information in Scenario 9.7.If the company desires a 95% service level,how many times per year will they stock out if they order the economic order quantity each time?
A)less than or equal to 3 times
B)greater than 3 times but less than or equal to 4 times
C)greater than 4 times but less than or equal to 5 times
D)greater than 5 times

Question

Quizplus · Accepted Answer

With a 95% service level, the company will stock out 5% of the time. Since they order the economic order quantity (EOQ) each time, the number of orders per year is demand divided by EOQ. The EOQ can be calculated using the formula: EOQ = sqrt((2 * Demand * Ordering cost) / Holding cost). Once EOQ is calculated, divide the annual demand by EOQ to find the number of orders per year. Multiply this by the stockout probability (5%) to find the expected number of stockouts per year, which is less than or equal to 3 times.

Scenario 9.7 You Are the Operations Manager of a Firm That Uses