You must determine the best ordering policy for a new inventory item for which the demand is forecasted to be around 1,000 pcs. annually. You know the actual forecast for the following year, as well as the past values of various cost factors as they were recorded last year (see the table below); you are told that these costs will stay the same for the following year. You are the only qualified individual in the company to determine which of the listed cost factors are relevant for your analysis and then to recommend the next years policy (i.e., order quantity and ROP) for this new item. 1. Identify the cost factors that are relevant to your analysis and eliminate the nonrelevant ones . For efficiency, you may use the existing table in the Excel file provided to you and just strikethrough all the cost factors that, in your opinion, are not relevant to your task.

2. Show, separately, the relevant cost factors classified under various categories (types) of Inventory Costs . You may set up columns for each relevant category (type) of Inventory Cost, and move to the respective columns the cost factors that are relevant for your analysis.

3. Calculate the EOQ for this new inventory item .

4. The organization works 50 weeks per year and the demand per week for this new item (see individual Excel data) will be constant. What should be the ROP for this item if its supplier guarantees a lead time of exactly 21 calendar days calculated from the time you place the order until the time your organization receives the item? Show the solution both algebraically and graphically

PAST INFORMATION ABOUT INVENTORY IN GENERAL			Values "total per year - last year" unless otherwise stated
				Average Value of inventory last year			$ 505,000
				Bank charges related to the payment of purchase orders (total last year)			$ 10,010
				Combination of Interest rate & opportunity cost (last year)			5.75%
Costs (last year) to keep a 3PL firm under contract for advice and services regarding the logistics involved for the items purchased			$ 2,790
Inbound transportation - total cost last year			$ 69,160
Insurance premiums for the inventory (average per unit per year)			$ 0.91
Inventory obsolescence (based on last year findings)			0.95%
Number of inventory items (as per last year's inventory count)			$ 10,400
Number of orders placed for the entire year (last year)			$ 618
Outbound transportation - total cost last year			$ 42,140
Pilferage of inventory (total of last year)			$ 4,785
Product advertising (for the entire year, last year)			$ 30,240
Purchasing department supplies (total cost last year)			$ 1,647
Purchasing department telecommunications costs (total last year)			$ 10,750
Purchasing dept overhead (toal last year)			$ 8,855
Purchasing dept. cost related to the payment of supplier's invoices by the accounting department (total last year)			$ 833
Receiving inspection for incoming shipments (total cost last year)			$ 1,320
Rent for the warehouse (total for last year)			$ 9,595
Research and development (last year)			$ 13,260
Salaries & wages for the Purchasing Department (total payroll last year)			$ 31,200
Salaries & wages for the Warehouse (total payroll last year)			$ 22,826
Spoilage (last year, total cost)			$ 3,788
Warehouse overhead (total last year)			$ 10,735
Warehouse supplies for maintenance (total cost last year)			$ 2,485
INFORMATION REGARDING THE NEW INVENTORY ITEM			Values related to the new Inventory Item
				Cost of the new item			$ 69.75
				Demand forecast for the new item during the following year (units per year)			1,010