I'm confused on requirement 3 of the question. I am unsure about the safety stock of pairs of shoes that needs to maintained. I'm also curious about how that would increase the reorder point to x number of shoes. If possible, I'd like to see the math behind the question as well.
Prater Shoe Co. produces and sells an excellent quality walking shoe. After production, the shoes are distributed to 20 warehouses around the country. Each warehouse services approximately 100 stores in its region. Prater uses an EOQ model to determine the number of pairs of shoes to order for each warehouse from the factory. Annual demand for Warehouse OR2 is approximately 126,000 pairs of shoes. The ordering cost is $300 per order. The annual carrying cost of a pair of shoes is $2.10 per pair. Read the requirements. Requirement 1. Use the EOQ model to determine the optimal number of pairs of shoes per order. Begin by selecting the formula used to calculate EOQ. (D = Demand in units for one year, P = Ordering cost per purchase order, C = Carrying cost of one unit in stock, Q = Any order quantity.) 2DP EOQ = The optimal number of pairs of shoes per order is 6,000 pair. Requirement 2. Assume each month consists of approximately 4 weeks. If it takes 1 week to receive an order, at what point should warehouse OR2 reorder shoes? Determine the formula used to calculate the reorder point for reordering shoes in warehouse OR2, then calculate the reorder point. Demand per week Purchasing lead time (wks) = Reorder point 2,625 pairs 2,625 X 1 Requirement 3. Although OR2's average weekly demand is 2,625 pairs of shoes (126,000 + 12 months + 4 weeks), demand each week may vary with the following probability distribution: Total demand for 1 week 1,500 pairs 2,150 pairs 2,625 pairs 2,895 pairs 3,095 pairs Probability (sums to 1.00) 0.04 0.10 0.72 0.10 0.04 If a store wants shoes and OR2 has none in stock, OR2 can "rush" them to the store at an additional cost of $2 per pair. How much safety stock should Warehouse OR2 hold? How will this affect the reorder point and reorder quantity? lowest should The relevant total stockout and carrying costs are the of shoes is maintained. Therefore, Warehouse OR2 This will increase the reorder point to remain the same. when a safety stock of pairs hold that number as safety stock. pairs of shoes. The reorder quantity will
