EOQ = Square root ( 2 x 320 x 14000/ 4) = 1497
Average time between orders = EOQ/annual demand x 52 weeks = 1497/14000 x 52 = 5.56 weeks
EOQ = 1497
AVERAGE TIME BETWEEN ORDERS = 5.56 WEEKS
Cycle service level =95 %
I.e. In stock probability = 0.95
Corresponding Z value = NORMSINV ( 0.95 ) = 1.6448
Standard deviation of demand during lead time
= Standard deviation of weekly demand x Square root ( Lead time of 3 days )
= 120 x Square root ( 3 )
= 120 x 1.732
= 207.84
Therefore , required safety stock
= Z value x standard deviation of demand during lead time
= 1.6448 x 207.84
= 341.85 ( 342 rounded to nearest whole number )
Reorder point = Average weekly demand x Lead time( weeks) + Safety stock
= (14000/52 ) x 3 + 342 = 807.69 + 342 = 1149.69 ( 1150 rounded to nearest whole number )
SAFETY STOCK = 342
REORDER POINT = 1150
Annual cost of placing order
= Co x D/ EOQ
= 320 X 14000/1497
= $ 2992.65
Annual cost of holding the cycle inventory
= Ch x EOQ /2
= 4 X 1497/2
= $2994
ANNUAL COST OF PLACING ORDER = $2992.65
ANNUAL COST OF HOLDING CYCLE INVENTORY =$2994
Current on hand inventory = 1308 units
Withdrawal quantity = 95 units
Net quantity post withdrawal = 1308 – 95 = 1213
Since net quantity post withdrawal ( i.e. 1213 ) > Reorder point 1150, IT IS NOT YET TIME TO REORDER