Sam's Shoes has problems with its best-selling shoe—theFastShoe. Sam, the owner, tells you that he always seems to havetoo many or too few of the FastShoe. He has hired you to helpdetermine how much and when to order. At the same time, the companyis considering quotes from 2 different suppliers, and you will helpcompare suppliers. You estimated the following information from thedetailed records that Sam kept on the shoe. You calculated thestandard deviation of daily demand to be able to estimate thevariation of demand during lead time—useful for calculating theamount of extra shoes to have on hand to minimize stockouts thatplagued Sam. Sam wanted to have the FastShoe available no less than95% of the time.
Requirements (annual forecast) | 900 | units |
Average daily demand | 2.47 | units (365 days) |
Standard deviation of daily demand | 0.06 | |
Order processing cost | 435 | per order |
Annual inventory holding cost factor | 35% | per year |
Description | Supplier 1 | Supplier 2 |
Per unit price of shoe | 60 | 76 |
Average lead time in days | 3.00 | 1.00 |
Standard deviation of lead time days | 0.56 | 0.84 |
ote, do the interim calculations first and then use thissupporting data in the total cost calculations. For instance, usenumber of orders (rounded) to calculate order cost. Roundall answers to the nearest whole number.
Interim calculations | Supplier 1 | Supplier 2 |
EOQ | 193 | |
Number of orders | 5 | |
Number of units for safety stock | 2 | |
Reorder point with safety stock | 9 | |
Total Cost Calculations | Supplier 1 | Supplier 2 |
Total purchasing cost | $ 54,000 | $ |
Ordering cost | 2,175 | |
1st year cost of safety stock | 120 | |
Holding cost of safety stock | 42 | |
Holding cost of cycle stock | 2,027 | |
TOTAL COST | $ 58,364 | $ 73,171 |
