Operations Management: Processes and Supply Chains, 12th Edition

Solved Problem 5

Suppose that a periodic review (P) system is used at the distributor in Solved Problem 4, but otherwise the data are the same.

1. Calculate the P (in workdays, rounded to the nearest day) that gives approximately the same number of orders per year as the EOQ.

2. What is the target inventory level, T? Compare the P system to the Q system in Solved Problem 4.

3. What is the total annual cost of the P system?

4. It is time to review the item. On-hand inventory is 40 mixers; receipt of 440 mixers is scheduled, and no backorders exist. How much should be reordered?

Solution

1. The time between orders is

   $$P=\frac{\text{EOQ}}{D}\left(260\text{ days}/\text{year}\right)=\frac{440}{26,000}\left(260\right)=4.4,\text{ or }4\text{ days}$$

2. Figure 9.15 shows that $T=812$ and safety $\text{stock}=\left(1.41\right)$