Stecyk

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.

Stecyk

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

120,000

pairs of shoes. The ordering cost is

$250

per order. The annual carrying cost of a pair of shoes is

$2.40

per pair.Read the

requirements1.

Requirement 1. Use the

EOQ2

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.)

ModifyingAbove EOQ equals StartRoot StartFraction 2 DP Over Upper C EndFraction EndRoot With Subscript EOQ=2DPC

The optimal number of pairs of shoes per order is

5,000

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
2,500		1	=	2,500	pairs

Requirement 3. Although OR2's average weekly demand is

2,500

pairs of shoes

(120,000

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	2,500 pairs	2,800 pairs	3,050 pairs
Probability (sums to 1.00)	0.03	0.10	0.74	0.10	0.03

If a store wants shoes and OR2 has none in stock, OR2 can "rush" them to the store at an additional cost of

$3

per pair. How much safety stock should Warehouse OR2 hold? How will this affect the reorder point and reorder quantity?

The relevant total stockout and carrying costs are the			(1) lowest	when a safety stock of		pairs
of shoes is maintained. Therefore, Warehouse OR2			(2) should	hold that number as safety stock.
This will	(3) increase	the reorder point to		pairs of shoes. The reorder quantity will
(4) remain the same.

1: Requirements

1. Use the EOQ model to determine the optimal number of pairs of shoes per order.

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?3. Although OR2's average weekly demand is

2,500

pairs of shoes

(120,000

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	2,500 pairs	2,800 pairs	3,050 pairs
Probability (sums to 1.00)	0.03	0.10	0.74	0.10	0.03

If a store wants shoes and OR2 has none in stock, OR2 can "rush" them to the store at an additional cost of

$3

per pair. How much safety stock should Warehouse OR2 hold? How will this affect the reorder point and reorder quantity?