1)This question will have you calculating 2 different EOQ and ROP values and interpreting the results.For both EOQ and ROP, give your final answer in full sock sets (ROUND UP to the next whole number).The specific questions to answer are based in parts a-c.Tips to solve the EOQ and ROP are given below in bullet points.

See additional tips below:

Use a service level of 95% (z=1.65) when calculating the ROP

For the variance in weekly demand, use the data provided in the table on page 2 of the case with the FY2020 forecast for all approaches.

Remember that there is a difference between variance and standard deviation and how you apply these values in the ROP formula

Annual Inventory management costs will include the following: Annual Holding Costs, Annual Ordering Costs, and Purchase Cost.

a)Calculate EOQ and ROP for FY2020 based on the FY2020 forecast value that you recommended in Question #1.

b)Calculate the EOQ and ROP based upon actual demand for FY2020

a)Use the EOQ results from above and the Q that Throx is currently using (given in the case) and determine total inventory costs using 2020 actuals for your Demand (D).

i.Compare the total inventory costs from the three results and analyze what it shows you.

ii.What if any are the implications of the ROP based on the forecast and Throx current ROP versus the ROP determined using Actual Demand.

Demand Characteristic

2019

2020

Annual Demand, sets

26,000

29,500

Average Weekly Demand

500

567

Variance of weekly Demand

125

142

Year

Actual Demand(Three Sock Sets)

Exponential Forecast

2019

26,000

22,110

2020

29,500

25,611

Inventory Management Information

The initial inventory for all sock styles combined at the beginning of FY 2021 is 2,250 units.You also have information on current costs, which includes:

Order cost to Throx for an order placed with its current supplier, $/order = S = $250

Holding cost per set per per year = H = $1.50

The company currently pays $6.50 for each set of socks. = P

The company uses a continuous review replenishment policy, and has IT systems in place that allow constant monitoring of key information.Last year, the company used an ROP under this policy of 1,800 units for all sock styles and an order quantity Q of 4,000 units for all sock styles.

Company Background Information

Throx sells higher-end custom-design socks in three-sock sets (rather than two).The company operates from a small packaging and distribution facility in Richmond, CA from which it ships product to customers.Given the company's location and focus, 97% of sales are in California, primarily in the major urban areas of the San Francisco bay area, Los Angeles, Sacramento (and last but not least) San Diego. The company sells exclusively via online sales, at an average price of $18/three-sock set, plus shipping costs charged to the customer.

The company currently orders its product from the Chinese sock manufacturer Zhejiang Datang Hosiery Group Co., Ltd in so-called "Sock City."Socks are shipped via truck to the port of Shanghai, from where they are shipped to the port at Los Angeles-Long Beach via ocean freight. Once offloaded in Los Angeles-Long Beach, the socks are shipped via truck to the Richmond facility.On average, shipment from the manufacturer to the Richmond facility takes 4 weeks. In addition to the transit time required for shipment, the lead time from when an order is placed with the manufacturer to when it is shipped from Zhejiang is 3 weeks. So, the total lead time is considered to be 7 weeks from when Throx places an order until it reaches the Richmond facility.Historically, the standard deviation of lead time has been 1 week.