Your firm uses a periodic review system for all SKUs classified, using ABC analysis, as B or C items. Further, it uses a continuous review system for all SKUs classified as A items. The demand for a specific SKU, currently classified as an A item, has been dropping. You have been asked to evaluate the impact of moving the item from continuous review to periodic review. Assume your firm operates 52 weeks per year; the item’s current characteristics are:
Demand (D)= 13,000 units/year
Ordering cost (S)= $125.00/order
Holding cost (H)= $4.00/unit/year
Lead time (L)= 7 weeks
Cycle-service level= 98%
Demand is normally distributed, with a standard deviation of weekly demand of 67 units.
a. Calculate the item’s EOQ.
EOQ= —— units. (Enter your response rounded to the nearest whole number.)
b. Use the EOQ to define the parameters of an appropriate continuous review and periodic review system for this item. Refer to the standard normal table1 when necessary. Under a continuous review system, order ——- units whenever the inventory level drops to ——– units. (Enter your responses rounded to the nearest whole number.)
Under a periodic review system, order up to ——- units every ——– weeks. (Enter your responses rounded to the nearest whole number.)
c. Which system requires more safety stock and by how much? Select the correct choice below and fill in the answer box. The continuous/ periodic review system requires ——– more units of safety stock than the continuous/ periodic review system.
(Enter your response rounded to the nearest whole number.)