4) Computing EOQ, TC, and Reorder Point

1. The following information is available on the inventory management of a popular mouthwash at Merkle Pharmacies:

(1) Demand (and current order quantity) is 0 = 2,000 cases per month.

(2) Merkles cost is = $12 per case.

(3) The inventory-holding cost is = 18%, between a 12% cost of capital plus an additional 6% from insurance, taxes, pilferage, breaking, etc.

(4) The cost of placing an order is = $38.

2. Find

(1) the economic order quantity, .

2) the minimum total cost and compare it to the current total cost.

(3) the reorder point, , assuming the manufacturer lead time is 3 days.

Solution: Computing EOQ and TC

1. For the EOQ model, we use an annual demand, = __________? cases per year.

2. The annual inventory cost per case is, = ?

3. Thus, the minimum-cost economic order quantity, , is: = ?

4. The total cost model, as a function of the order quantity, , is: = ?

5. For the current policy of = , cases per month, we have: = ?

Computing TC and Reorder Point

6. For the minimum-cost EOQ, = , we have (1) = ?

7. We can conclude that the EOQ analysis has resulted in a saving of (1) = $ __?, or a ?% cost reduction.

8. For the reorder point, we know that the lead time is =? days.

9. Operating 250 days/year, the demand rate is =? =? cases/day.

10. Thus, the reorder point is: = = ? cases.

11. Finally, the average time between orders, , is: 12. = ? ys