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Solution 2: Holding Cost Per Unit of Good Order Quantity Order Quantity Demand

The document determines how demand, order quantity, replenishment cycle time, and annual inventory holding cost will change in 2011 based on given formulas: (i) Demand and order quantity will increase by a factor of √3, (ii) Replenishment cycle time will decrease to 57% of the current time, (iii) Annual inventory holding cost will increase by a factor of 1.732.

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77 views1 page

Solution 2: Holding Cost Per Unit of Good Order Quantity Order Quantity Demand

The document determines how demand, order quantity, replenishment cycle time, and annual inventory holding cost will change in 2011 based on given formulas: (i) Demand and order quantity will increase by a factor of √3, (ii) Replenishment cycle time will decrease to 57% of the current time, (iii) Annual inventory holding cost will increase by a factor of 1.732.

Uploaded by

mailrahulraj
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

SOLUTION 2

Determine how much each of the following items will increase or decrease in 2011: (i) order
quantity, (ii) replenishment cycle time, and (iii) annual inventory holding cost.

Demand 2011 = 3 * Demand

2∗Cost per order∗Demand


(i) Order quantity =
√ Holding cost per unit of good

Order quantity 2011 3∗Demand


In 2011,
Order quantity current
=
√ Demand
= √ 3=1.732

(ii) Replenishment cycle time = (D/Q)

Q2011
∗D
Hence replenishment cycle time in 2011is given by = D2011
∗Current −replenishment time
Q

=(√ 3/3)*current replenishment time

=(1/1.732)*current replenishment time

=0.57¿ current replenishment time

(iii) Annual inventory holding cost= hQ/2

Annual inventory holding cost in 2011 will be 1.732* current annual inventory holding cost.

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