Problem 2. Continuous Review (Q) System

Greenhill Human Society of Eugene provides shelter and care for rescued pets available for adoption. They maintain a stock of kitty litter to meet the daily needs of the cats residing in the facility. While the overall demand for kitty litter remains relatively stable over time, the specific consumption can vary from day to day. Greenhill procures employs a Continuous Review inventory system to manage the orders for kitty litter. Greenhill operates 6 days a week and 52 weeks per year (total 312 days a year). Below, weve gathered information of Greenhill's inventory operations:

Expected demand rate = 15 bags/day Standard deviation of demand rate = 6.124 bags/day Ordering cost = $54/order The variable cost of purchase = $11.70 per bag Annual holding cost = 27% of purchase cost Desired cycle-service level = 80% Lead time = 18 days

Greenhill wants to optimize its inventory system.

1. What is the order quantity they should use? (Hint: calculate EOQ.) 2. To achieve the desired cycle-service level, what should the reorder point (ROP) be? 3. At this moment, the current on-hand inventory is 310 bags (and no scheduled receipt, no back order). Is it time for Greenhill to reorder? 4. Whats Greenhills annual total costs? (Hint: sum of three costs components: (1) annual holding cost for cycle inventory, (2) annual holding cost for safety stock, and (3) annual ordering cost.)