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IGC Distribution Company has three warehouses in the USA. The company would like to perform a pilot study to evaluate the inventory cost in the
IGC Distribution Company has three warehouses in the USA. The company would like to perform a pilot study to evaluate the inventory cost in the warehouses. The pilot study will consider the warehouse located in San Diego, CA and a distribution valve. Based on the past data it is estimated that demand for the distribution valve in San Diego follows normal distribution with mean equal to 2600 units per week and standard deviation for demand is 340 units per week. It is assumed that inventory holding rate will be 26% per unit per year and cost of each valve is $180. In addition, IGC pays $350 each time when an order is place for distribution valves and the lead time is five weeks. The objective customer service level is 96%. a) Calculate the economic order quantity, EOQ. (10 points) b) Calculate safety stock, ss. (10 points) c) Calculate the reorder point, ROP. (10 points) Calculate the Total Cost per year given the EOQ value on part a. (10 points) e) What would be the total cost if order quantity is reduced to EOQ/2. (10 points)
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