AaBbCcDdEe AaBbCcDdEe AaBbCcDc Aa No Spacing Heading 1 Put your answer in a Spre
ID: 360124 • Letter: A
Question
AaBbCcDdEe AaBbCcDdEe AaBbCcDc Aa No Spacing Heading 1 Put your answer in a Spreadsheet, with numerical answers clearly marked and highlighted in color. A please label your spreadsheet as LastName_FirstName_3.xlsx. Problem Consider the calculation of an EOQ at a Home Depot Hardware Store. The item to be ordered are Stanley Screwdrivers. The usage of these screwdrivers, which cost the department $4.00 apiece, is forecasted to be 500 per year (with a CV of 20%). The annual holding cost rate used is 10% (it is low because it is a non-perishable item) and the ordering cost is estimated to be $60. The lead time from order to receipt is 1 week and demand is perfectly correlated across weeks. 1. Calculate the optimal order quantity and the reorder point under two customer service targets: 95% cycle service level (CSL), and b) a) 99% product fill rate (FR). 2. Suppose that your problem is not variation in demand, but variation in supply, the delivery lead ti pecause of possible disruptions in the supply chain. Explain which metric, CSL or FR, you think woul more appropriate here - and why.Explanation / Answer
Annual demand, D = 500
Std deviation of annual demand, s = D*CV of demand = 500*20% = 100
Weekly demand, = 500/52 = 9.62
Std deviation of weekly demand, = 100/52 = 13.87
Ordering cost, K = $ 60
Holding cost, H = 4*10% = $ 0,4
Lead time, L = 1 weeks
a) Optimal order quantity = (2*D*K/H) = (2*500*60/0.4) = 387
Reorder point (ROP) = *L + zL , where z=1.65 for (95% service level, refer standard normal Z-table)
ROP = 9.62*1 + 1.65*13.871 = 32.5
b) For fill rate = 99%, Standard loss function, L(z) = 1 - 99% = 0.01
Corresponding, z value = 1.92 (taken from Standard loss table)
Reorder point (ROP) = *L + zL , where z=1.92-table)
ROP = 9.62*1 + 1.92*13.871 = 36