Question

The manager of a car wash received a revised price list from the vendor who supplies soap, and a promise of a shorter lead time for deliveries. Formerly the lead time was 8 days, but now the vendor promises a reduction of 25 percent in that time. Annual usage of soap is 4650 gallons. The car wash is open 360 days a year. Assume that daily usage is normal, and that it has a standard deviation of 3.0 gallons per day. The ordering cost is $45 and annual carrying cost is $4.0 a gallon. The revised price list (cost per gallon) is shown in the following table:

Order Size..........Unit Price
----------------------------------------------------
1--349 .................2
350--474..............1.7
475++................1.62

The store manager is considering to provide a service level of 0.75.

1. How much is the Quantity from EOQ?

2. How much is the total annual inventory related costs (holding, ordering, and purchase costs) if the car wash order the quantity from EOQ model?

3. How much is the total annual inventory related costs (holding, ordering, and purchase costs) if the bakery orders just enough to get the soap at the price of $1.7?

4. How much is the total annual inventory related costs (holding, ordering, and purchase costs) if the car wash orders just enough to get the soap at the price of $1.62?

5. What is the car wash's optimal order quantity, given this quantity discount information?

6.How often (in "days") should the car wash order?

7. How long (in days) is the lead time?

8. What is the Z value for the desired service level?

9.How much safety stock is needed to provide the desired service level?

10. What is the ROP for the desired service level?

Answer 1

Inventory management is the process by which inventory and stock items are supervised. Inventory management is the proper management of flow of goods from manufacturers to warehouses to the point of sale. Economic order quantity is the optimal quantity that minimize the inventory cost. The total ordering cost and holding cost are the optimal level of order quantity and order cost of inventory is directly proportional to the EOQ. Since inventory management focus on minimizing the total cost ( ordering cost, holding cost and sometimes purchase cost), so minimizing the cost of holding inventory is the objective of inventory management.

D 4650 gullons H 34.0 10 F x 4650 x45 325 45 325 uis 15 Anauses TC 65D 20 325 10513 8 16 6 10,594ee 591 851+100+ 7705