One of the products sold by OfceMax is a Hewlett-Pack ard DeskJet Z4480 printer. As purchasing manager,

Question:

One of the products sold by OfﬁceMax is a Hewlett-Pack ard DeskJet Z4480 printer. As purchasing manager, you have the following information for the printer:

Average weekly demand
(52 weeks per year):......60 printers
Standard deviation of weekly
demand:...........12 printers
Order lead time:.........3 weeks
Standard deviation of order
lead time:............0 (lead times are constant)
Item cost:...........$120 per printer
Cost to place an order:.....$2
Yearly holding cost per
printer:...........$48
Desired service level during
reordering period:.........99% 1z = 2.332
a. What is the for the printer?
b. Calculate annual ordering costs and holding costs (ignoring safety stock) for the EOQ. What do you notice about the two?
c. Suppose OfficeMax currently orders 120 printers at a time. How much more or less would OfficeMax pay in holding and ordering costs per year if it ordered just 12 printers at a time? Show your work.
d. What is the reorder point for the printer? How much of the reorder point consists of safety stock? For parts e and f, use the following formula to consider the impact of safety stock (SS) on average inventory levels and annual holding costs:

e. What is the annual cost of holding inventory, including the safety stock? How much of this cost is due to the safety stock?
f. Suppose OfficeMax is able to cut the lead time to a constant 1 week. What would the new safety stock level be? How much would this reduce annual holding costs?

Economic Order Quantity
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has...