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Operations Management

Assignment 7: Inventory Control

I would like like the solution "step by step"

The manager of a construction firm has determined from historical records that demand for cement averages 5 tons per week with a standard deviation of 3 tons. The supply lead time is 4 weeks. The cost of a ton of cement is $100 and inventory carrying cost is estimated at an annual rate of 30%. The cost of placing an order is $96.

[Assume 50 weeks in a year.]

Compute the following:

a. Economic order quantity

b. Number of orders per year

c. Cycle length (i.e., number of weeks between consecutive orders)

d. Average inventory level

e. Total annual cost of ordering + inventory carrying

f. Compute the reorder pointand the corresponding safety stock for each of the following service levels:

i. 90%

ii. 95%

iii. 99%

iv. 99.9%

v. 99.99%

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