1. Number of orders/yr = R/Q = 1560/300 = 5.2
Current Policy
Problem 6.3
flow unit = one dress
flow rate R = 30 units/wk
purchase cost C = $150/unit
fixed order cost S = $225
cost of capital r = 20%/yr.
order lead time L = 2 weeks
Orders ten weeks supply
Q = 10(30) = 300 units.
Annual demand = 30(52) = 1560
Number of orders/yr = R/Q = 1560/300 = 5.2
(R/Q) S = 5.2(225) = 1,170/yr.
Average inventory = Q/2 = 300/2 = 150
H = rC = .2*150 = 30
Annual holding cost = H (Q/2) = 30(150) = 4,500 /yr.
Without any computation, is this the optimal policy?
Why?
Without any computation, is EOQ larger than 300 or smaller
Why
Annual purchasing cost =
RC = 150(1560) = 234,000/yr
Total annual costs = 234, =
234, =
$239,670.

2. An order for 153 units two weeks before he expects to run out.
Optimal Policy
Q* = EOQ =
= 153 units.
An order for 153 units two weeks before he expects to run out.
That is, whenever current inventory drops to
RL = 30 units/wk * 2 wks = 60 units
which is the re-order point.
RC +
RC +
His annual cost will be
RC +
234, ,589 = $238,589

3. Inventory Turns
Inventory turns = R/I
I is the average inventory
Average inventory = I = Q/2 with cycle stock only.
Current policy inventory turns = R/(Q/2)= 1560/(300/2) =
10.4 times per year.
Optimal policy inventory turns = 1560/(153/2) = 20.4
turns roughly double
Days of inventory in the optimal policy
# of working days per yr / inventory turns