Teek (Cominco)8 is a Canadian metal mining and processing company. The company runs two warehouses in Trail to store thousands of parts and supplies for the machines and equipment used in its mines and operations in western Canada and Alaska. Until a few years ago, the stocks in the warehouses were controlled using an IBM mainframe computer and IBM application software called Inventory' Management Program and Control Techniques, IMPACT.
IMPACT keeps track of each part, and its usage (withdrawal from the warehouse) over time, and triggers replenishment (addition to the warehouse) from the suppliers. IMPACT determines the reorder point (and the size of the next order) primarily based on the forecast for usage of the part in tire future. The forecasting technique used is Exponential Smoothing. For each inventoried part tire smoothing constant is found by trial and error. For the order quantity,
IMPACT uses the EOQ. The new version of IMPACT, called INFOREM, is used by many companies such as Federated Cooperatives Ltd. and Mark’s Work Wearhouse.
For illustration, consider a specific part, which is kept in stock. The following data is tire usage of the part during a nine-month period:

Suppose that now is the end of September and the next reorder point is coming up. Using Exponential Smoothing with a = 0.2, the forecast for October will be 6.7 units. The part costs Cominco $ 15/unit. Holding cost rate is 20 percent of unit cost per year. Ordering cost is $2/order. Purchase lead time for this part is 20 days. Assume 30 days in a month. (L03 & 4)
a. What should tire EOQ be?
b. For how many days is the EOQ enough (i.e., what is its time supply)?
c. Calculate the total annual inventory control cost of the EOQ.
d. Suppose now this part is ordered 7 at a time. How much more expensive is this?
e. Suppose there was no variability in demand or lead rime. Determine the reorder point.
f. Suppose a 95 percent lead time service level is required. From the forecasting module, the standard deviation of monthly demand = 5.14 units. Determine the reorder point.