18. One of the products sold by OfficeMax is a Hewlett-

Packard DeskJet 7000C printer. As purchasing manager, you have the following information for the printer:

a. (*) What is the economic order quantity for the printer?

b. (**) Calculate annual ordering costs and holding costs (ignoring safety stock) for the EOQ. What do you notice about the two?

c. (**) Suppose OfficeMax currently orders 120 printers at a time. How much more or less would OfficeMax pay in holding and ordering costs per year if it ordered just 12 printers at a time? Show your work.

d. (**) What is the reorder point for the printer?
How much of the reorder point consists of safety stock?
For Parts e and

f, use the following formula to consider the impact of safety stock (SS) on average inventory levels and annual holding costs:

e. (***) What is the annual cost of holding inventory, including the safety stock? How much of this cost is due to the safety stock?

f. (***) Suppose OfficeMax is able to cut the lead time to a constant one week.What would the new safety stock level be? How much would this reduce annual holding costs?

Transcribed Image Text:

Average weekly demand (52 weeks per year): 60 printers Standard deviation of weekly 12 printers demand: Order lead time: Standard deviation of order lead time: 3 weeks 0 (lead times are constant) Item cost: $120 per printer Cost to place an order: Yearly holding cost per printer: Desired service level during reordering period: $2 $48 99% (z = 2.33)