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For Supplier 2 let us first do the interim calculations:

EOQ = rt(2DS/H) =150

As EOQ will depend on only order quantities and not supplier

Order quantity = 3000/150= 20

Recorder point= d X L

D= avg daily demand = 8.22 , L= lead time= 3

Safety Stock = 10

Z= 95% confidence level = 1.65

St.dev= 1.13

So, ROP= 25+(1.65 * 1.13)=27

ROP with safety Stock = 10+ 27 = 37

Now Total Cost Calculation

Total purchasing cost $ 1,200,000 $10,50,000


Ordering cost 10,200
1st year cost of safety stock 4,000 3500
Holding cost of safety stock 1,360 1190

Interim calculations Supplier 1 Supplier 2


EOQ 150 150
Number of orders 20 20
Number of units for safety stock 10 10
Reorder point with safety stock 43 37

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