Report on Economic Order Quantity and Inventory Analysis, OPRE 6302

This report provides a comprehensive analysis of economic order quantity (EOQ) and inventory management principles. It includes calculations for EOQ, total annual inventory costs, the number of orders per year, and the time between orders, based on given scenarios. The report also addresses continuous review systems, calculating safety stock, reorder points, and the annual cost of holding and placing orders. The analysis utilizes formulas and data to determine optimal inventory levels and cost-effective strategies for managing stock-keeping units (SKUs), demonstrating the practical application of these concepts within operations and supply chain management.

Running head: REPORT 0
OPERATIONS AND SUPPLY CHAIN MANAGEMENT
MARCH 4, 2020
STUDENT DETAILS:

REPORT 1

REPORT 2
Question 1: $625 places an order cost of holding one year is $130.total annual demand 1500 units.
never to have stockouts of the laptops. The store is open 364 days.
a) Economic order quantity per order
b) Total annual inventory costs
c) The number of orders per year
d) The time between orders (in working days)
Answer
1:
1 (a)
Calculation of Economic order quantity
(EOQ) per order -
EOQ = √((2CoD)/Cc )
EOQ = √((2*1500*625)/130)
EOQ= √14423.076
EOQ = 120.096 or 120 units
Therefore, economic order quantity is 120
units.
1 (b) Calculation of annual inventory cost -
Total Cost = CoD/Q + CcQ/2
Total cost = (1500*625/120) + (120*130)/2
Total cost = 15612.5
Therefore, the annual inventory cost will be
$ 15612.5.
1 ©
Calculation of number of orders per year
-
Number of orders per year = D/EOQ
Number of orders per year = 1500/120
Number of orders per year = 12.5
Therefore, total numbers of orders per year
will be 12.5.
1 (d)
calculation of time between orders (TBO)
-

REPORT 3
Time between orders (TBO) = 364/ number
of orders
Time between orders (TBO) = 364/ 12.5
Time between orders (TBO) = 29.1
Therefore, time between orders will be 29.1
days.
Question 2: Your firm uses a continuous review system and operates 52 weeks per year. One of
the Stock-Keeping Units (SKUs) has the following characteristics:
Demand = 20000 units/year = 385 units/week
Ordering cost = $40/order
Holding cost = $2/unit/year
Service level = 95 percent z=1.65
Lead time = 2 weeks
Demand is normally distributed, with a standard deviation of weekly demand of 100 units.
Answer 2:
2 (a) Calculation of item's Economic order quantity
(EOQ) -
EOQ = √((2CoD)/Cc )
EOQ = √((2*20000*40)/2 )
EOQ = √800000
EOQ = 894.438
Therefore, the economic order quantity is 894 units.
Calculation of time between orders -

REPORT 4
Time between orders (TBO) = EOQ/D* 52 Weeks
Time between orders (TBO) = (894/20000)*52 weeks
Time between orders (TBO) = 2.3244
Therefore, time between orders will be 2.3244 weeks.
2(b) Calculation of safety stock –
Safety stock = Z*(standard deviation of demand at lead time)
Safety stock = 1.65*(2*100)
Safety stock = 330 units
Note: Here, z for 95% service level is 1.65
Therefore, Safety stock (SS) will be 330 units.
Calculation of reorder point proving 95% cycle-
service level -
Reorder point = (Average demand during lead time) + (Safety
Stock)
Reorder point = ((20000/52)*2) +330
Reorder point = 1099.230769
Therefore, reorder point is 1099.23.
2 © Calculation of annual cost of holding cycle inventory -
Annual cost of holding cycle inventory = EOQ/2 * Ch
Annual cost of holding cycle inventory = 892/2*2
Annual cost of holding cycle inventory = $ 892
Thus, the annual cost of holding cycle inventory is $ 892.

REPORT 5
2 (d) Calculation of annual cost of placing order –
Annual cost of placing order = D/EOQ * Co
Annual cost of placing order = (20000/892)*40
Annual cost of placing order = 896.8
Therefore, the annual cost of placing order will be $
896.8.
Calculation of average stock –
Average stock = Safety stock + Q/2
Average stock = 330+ 892/2
Average stock = 776
In this way, the average stock is 776 units.