Question

A company begins a review of ordering policies for its continuous review system by checking the current policies for a sample of sekus. Following are the characteristics of ore itam.

- Demand (D) = 80 units/week (Assume 50 weeks per year)
- Ordering and setup cost (S) = $75/order
- Holding coat (H)= $14/unit/year
- Lead time ( L )= 2 week(s)
- Standard deviation of weekly demand= 22 units
- Cycle-service level = 90 percent-EOQ= 217 units Using the above information, develop the best policies for a periodic review system. Refer to the standard normal table for z−values. a. What value of P gives the same approximate number of orders per year as the EOQ?____ weeks.

Answer 1

The periodic review interval, P, to match the number of orders to the EOQ model should be approximately 2.71 weeks, which would normally be rounded to 3 weeks.

Step-by-step explanation:

To determine the value of P that would give the same approximate number of orders per year as the Economic Order Quantity (EOQ), we can use the following information:

• Demand (D) = 80 units/week (Assume 50 weeks per year)
• EOQ = 217 units

To find the number of orders per year using EOQ, you'll divide the total annual demand by the EOQ:

Number of Orders per Year = D × number of weeks per year / EOQ = (80 units/week) × (50 weeks/year) / 217 units ≈ 18.43 orders/year

Since we want the periodic review system to have a similar number of orders per year, we'd set P such that the number of periods per year is about 18.43. As there are 50 weeks in a year:

P = number of weeks per year / Number of Orders per Year ≈ 50 weeks/year / 18.43 orders/year ≈ 2.71 weeks

Thus, the periodic review interval, P, should be set to approximately 2.71 weeks to match the frequency of orders to the EOQ model. Since P is typically set in whole weeks, we would round to the nearest whole number, in this case, 3 weeks.