Optimizing Inventory for Paper Clips, Etc. (PCE) Office Chairs

a. Optimal order quantity can be calculated using the Economic Order Quantity (EOQ) formula:

EOQ = sqrt((2DS)/H)

where D = annual demand, S = ordering cost, and H = holding cost rate.

Plugging in the given values, we get:

EOQ = sqrt((2 * 900 * 20) / 0.4) = 300

Therefore, the optimal order quantity is 300 chairs.

b. Safety stock can be calculated using the formula:

Safety stock = z * sqrt(LT) * sigma

where z = the z-score for the desired service level, LT = lead time, and sigma = the standard deviation of daily demand.

Plugging in the given values, we get:

Safety stock = 1.28 * sqrt(4) * 2.4 = 3.072

Therefore, the safety stock is 3 chairs.

c. Reorder point can be calculated using the formula:

Reorder point = (average daily demand * lead time) + safety stock

To find the average daily demand, we can divide the annual demand by the number of business days in a year:

Average daily demand = 900 / 300 = 3 chairs per day

Plugging in the given values, we get:

Reorder point = (3 * 4) + 3.072 = 15.072

Therefore, the reorder point is 15 chairs.