Concept explainers
Your firm uses a periodic review system for all SKUs classified, using ABC analysis, as B or C items. Further, it uses a continuous review system for all SKUs classified as A items. The demand for a specific SKU, currently classified as an A item, has been dropping. You have been asked to evaluate the impact of moving the item from continuous review to periodic review. Assume your firm operates 52 weeks per year; the item’s current characteristics are:
Demand is
- Calculate the item’s EOQ.
- Use the EOQ to define the parameters of an appropriate continuous review and periodic review system for this item.
- Which system requires more safety stock and by how much?
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