Phoenix Valley Lighting is preparing an inventory management plan for fluorescen
ID: 435867 • Letter: P
Question
Phoenix Valley Lighting is preparing an inventory management plan for fluorescent bulbs. They have a forecasted demand of 11,593 bulbs per month with a MAD of 207 bulbs per month. The lead time to receive bulbs is 2 week(s) and they would like to have a 99% service level to avoid turning away customers. Their ordering cost is $518 and their holding cost is $4 per bulb (breakage)per year.
When doing all calculations assume that there are 4 weeks in 1 month and there are no other contractual requirements on order quantities or frequencies.
If following a fixed time inventory system with a review period of 2 weeks, what should their order up to quantity be? Be sure to enter your results with two decimal places.
Explanation / Answer
Order up quantity for a fixed time inventory system is
= avg demand x ( review period + lead time) + z x sigmap+l
= 11593 x( 2+2) x12/ 52+ 2.33 x sigma x [( 2+2) x 12 /52]1/2
= 10701+ 2.33x207 x0.9607 = 11164