An automotive warehouse stocks a variety of parts that are sold at neighborhood stores. One particular part, a popular brand of oil filter, is purchased by the warehouse for $1.50 each. It is estimated that the cost of order processing and receipt is $100 per order. The company uses an inventory carrying charge based on a 25 percent annual interest rate. The monthly demand for the filter follows a normal distribution with mean 280 and standard deviation 70. Order lead time is assumed to be five months. Assume that if a filter is demanded when the warehouse is out of stock, then the demand is back-ordered, and the cost assessed for each back-ordered demand is $12.80. Determine the optimal values of the order quantity and the reorder level. Q= R=
Answer:
Given data,
Monthly average demand, d = 280
Std. dev of monthly demand, s = 70
Annual demand, D = 280*12 = 3360
Ordering cost, K = $100
Cost per item = $1.5
Average lead time, L = 5 months
Carrying cost, h = 25%*1.5 = $0.375
Backordering cost, b = $12.80
Optimal order quantity,
Q = √ (2.D.K.(h+b) / h.b) = √ (2*3360*100*(0.375+12.8)/(0.375*12.8))
Q = 1,358
If type-I service level = 95%
Z = NORMSINV (0.95) = 1.645
Safety stock, SS = Z * s * √L = 1.645*70*√5 = 257
Reorder point, R = d.L + SS = 280*5 + 257 = 1,657
High Tech Inc. is a virtual store that stocks a variety of calculators in its warehouse. Customer orders are placed; the orders are picked and packaged; and then orders are shipped to the customers. A fixed-order-quantity inventory control system (FQS) helps monitor and control these SKUs. The following information is for one of the calculators that High Tech stocks, sells, and ships. Average demand 9.5 calculators per week Lead time 5 weeks Order cost $15/order Unit cost $10.00 Carrying charge...
1 - the annual demand for product 15600 units the weekly demand is 280 units with a standard deviation 90 units the cost to place an order is $31.00 and the time from order to receipt is 4 weeks the annual inventory carrying cost is $0.10 per unit A- what is the EOQ quantity? B- from the information above what is the reorder point maintain a 95% service level? 2 - the weekly demand is 200 units the cost to...
10. 150 points Problem 11-24 Retailers Warehouse (RW) is an independent supplier of household items to department stores, RW attempts to stock enough items for a 98 percent service probability A stainless steel knife set is one item it stocks. Demand (1.900 sets per year is relatively stable over the entire year. Whenever new stock is ordered, a buyer must assure that numbers are correct for stock on hand and then phone in a new order. The total cost involved...
Chartsworth is a shoe producing company and sells an excellent quality shoe. After production, the shoes are distributed to 20 warehouses around the country. Each warehouse services approximately 100 stores in its region. Chartsworth uses an EOQ model to determine the number of pairs of shoes to order for each warehouse from the factory. Annual demand for Warehouse OR2 is approximately 120 000 pairs of shoes. The ordering cost is R250 per order. The annual carrying cost of a pair...
Johnson Electricals (JE) stocks a certain switch connector (unit cost $125) at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,000 units. JE estimates its annual holding cost for this item to be 20% of item cost. The cost to place and process an order from the supplier is $75. The company operates 300 days per year, and the lead time to receive an order from the supplier is 2 working days. Find...
Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,800 units. Southeastern estimates its annual holding cost for this item to be $24 per unit. The cost to place and process an order from the supplier is $76. The company operates 300 days per year, and the lead time to receive an order from the supplier is 2 working days. a) What is the economic order...
only a and b
pt 2 for reference
newsvendor model
3. The warehouse store in Problem #2 has a lot of market power. It has convinced its supplier to build a warehouse nearby and to provide vendor-managed-inventory (VMI) services - including delivery-- for free, with inventory being delivered on consignment. Under a vendor-managed inventory system, the warehouse store no longer sends orders to the supplier. Instead the supplier is responsible for managing the inventory according to some rules that are...
Annual demand for a Tonka Trucks is 22,100 units: with a weekly standard deviation of 85 units. The cost of making an order from Indonesia and paying shipping is $1,200, and the time from ordering to receipt is 3 weeks. The annual inventory carrying cost is $1.50 per unit. 1. Specifically, what is the optimal order quantity? 2. To provide a 98% service level, what must the reorder point be? Samantha's Poker Gallery orders snacks from Cisco every week. The...
(8 points) A coffee shop sells bags of roasted coffee beans to customers to make into coffee at home. The demand for these bags is quite predictable (and can be treated as deterministic for our purposes). The shop sells 3,500 bags of coffee beans per year. Each time the shop places an order for these bags with its coffee supplier, it incurs an administrative cost of $15, independent of the quantity ordered. The company values each bag at $12.50 (this...
Please read the opening Vignette about Trader Joe's inventory
practices. How has it helped you comprehend the dilemmas and
practical issues of managing supply-chain inventory.
Please explain in great detail. Thank you!
On an early July morning a crowd has gathered for the opening of Trader Joe's newest store location, in Manhattan's Chelsea neighborhood. As shoppers stand in line for the store's opening, they chat about their favorite Trader Joe's foods and discuss the ben- efits the store opening will...