Sam’s Cat Hotel operates 52 weeks per year, 7 days per week,and uses a continuous review inventory system. It purchaseskitty litter for $10.75 per bag. The following information isavailable about these bags.Demand = 95 bags>weekOrder cost = $58>orderAnnual holding cost = 25 percent of costDesired cycle@service level = 90 percentLead time = 4 weeks 128 working days2Standard deviation of weekly demand = 16 bagsCurrent on-hand inventory is 315 bags, with no open ordersor backorders.a. What is the EOQ? What would be the average time betweenorders (in weeks)?b. What should R be?c. An inventory withdrawal of 10 bags was just made. Is ittime to reorder?d. The store currently uses a lot size of 490 bags (i.e.,Q = 490). What is the annual holding cost of this policy?Annual ordering cost? Without calculating the EOQ, howcan you conclude from these two calculations that thecurrent lot size is too large?e. What would be the annual cost saved by shifting from the490-bag lot size to the EOQ?

Purchasing and Supply Chain Management
6th Edition
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Chapter16: Lean Supply Chain Management
Section: Chapter Questions
Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...
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Sam’s Cat Hotel operates 52 weeks per year, 7 days per week,
and uses a continuous review inventory system. It purchases
kitty litter for $10.75 per bag. The following information is
available about these bags.
Demand = 95 bags>week
Order cost = $58>order
Annual holding cost = 25 percent of cost
Desired cycle@service level = 90 percent
Lead time = 4 weeks 128 working days2
Standard deviation of weekly demand = 16 bags
Current on-hand inventory is 315 bags, with no open orders
or backorders.
a. What is the EOQ? What would be the average time between
orders (in weeks)?
b. What should R be?
c. An inventory withdrawal of 10 bags was just made. Is it
time to reorder?
d. The store currently uses a lot size of 490 bags (i.e.,
Q = 490). What is the annual holding cost of this policy?
Annual ordering cost? Without calculating the EOQ, how
can you conclude from these two calculations that the
current lot size is too large?
e. What would be the annual cost saved by shifting from the
490-bag lot size to the EOQ?

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