Annual demand for the notebook binders at Andrew’s stationary shop is 10,000 units. Andrew operates the business 300 days per year and finds that deliveries from his supplier generally take 5 working days.
To calculate the required inventory level for Andrew's stationary shop, you need to consider the annual demand, the number of operating days, and the lead time for deliveries.
First, let's calculate the daily demand by dividing the annual demand by the number of operating days:
Daily demand = Annual demand / Number of operating days
Daily demand = 10,000 units / 300 days
Daily demand = 33.33 units per day (rounded to the nearest decimal)
Next, let's calculate the required safety stock. Safety stock is an extra inventory maintained to account for any uncertainties or unexpected events, such as supplier delays or spikes in demand.
To calculate the safety stock, you need to consider the lead time for deliveries. In this case, the lead time is 5 working days.
Safety stock = Daily demand * Lead time
Safety stock = 33.33 units per day * 5 days
Safety stock = 166.65 units (rounded to the nearest decimal)
Finally, let's calculate the required inventory level:
Required inventory level = Daily demand * Lead time + Safety stock
Required inventory level = (33.33 units per day * 5 days) + 166.65 units
Required inventory level = 166.65 units + 166.65 units
Required inventory level = 333.3 units (rounded to the nearest decimal)
Therefore, Andrew's stationary shop should maintain an inventory level of approximately 333 units of notebook binders to meet the annual demand given the operating days and lead time for deliveries.