This business/management problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
To calculate the optimal number (reorder point), minimum stock level, and maximum stock level, we will use the information provided and the Economic Order Quantity (EOQ) calculated previously. From the previous problem: Annual Demand (D) = 600,000 units EOQ = 4,000 units Lead time = 3-5 weeks (Average lead time = 4 weeks) Unit security margin = 75% Step 1: Calculate the Average Weekly Demand. We need the average weekly demand to determine stock levels over time. Average Weekly Demand = Annual DemandNumber of weeks in a year Assuming 52 weeks in a year: Average Weekly Demand = 600\,000 units52 weeks ≈ 11\,538.46 units/week Step 2: Calculate the Minimum Stock Level (Safety Stock). The "Unit security margin 75%" is interpreted as 75% of the average weekly demand, which serves as the safety stock to cover unexpected demand or delays. Safety Stock (SS) = 0.75 × Average Weekly Demand SS = 0.75 × 11\,538.46 units ≈ 8\,653.85 units Rounding to the nearest whole unit, the minimum stock level is 8,654 units. Step 3: Calculate the Optimal Number (Reorder Point). The optimal number refers to the reorder point (ROP), which is the inventory level at which a new order should be placed. Reorder Point (ROP) = (Average Demand during Lead Time) + Safety Stock First, calculate the average lead time: Average Lead Time = 3 weeks + 5 weeks2 = 4 weeks Next, calculate the demand during the average lead time: Demand during Lead Time = Average Weekly Demand × Average Lead Time Demand during Lead Time = 11\,538.46 units/week × 4 weeks ≈ 46\,153.84 units Now, calculate the Reorder Point: ROP = 46\,153.84 units + 8\,653.85 units ≈ 54\,807.69 units Rounding to the nearest whole unit, the optimal number (reorder point) is 54,808 units. Step 4: Calculate the Maximum Stock Level. The maximum stock level is typically the safety stock plus the Economic Order Quantity (EOQ), assuming a new order arrives when the stock level has reached the safety stock. Maximum Stock Level = Safety Stock + EOQ Maximum Stock Level = 8\,653.85 units + 4\,000 units ≈ 12\,653.85 units Rounding to the nearest whole unit, the maximum stock level is 12,654 units. The optimal number (Reorder Point) is 54\,808 units. The minimum stock level is 8\,654 units. The maximum stock level is 12\,654 units. 3 done, 2 left today. You're making progress.