Question

Please only answer part C in detail (11marks )

Question 2
Speedy Sports Ltd (Speedy) sells one style of sports shoe. These shoes
are purchased from several manufacturers in mainland China. Speedy
has a warehouse in Shenzhen where the manufacturers deliver the
finished products to Speedy. The annual demand for shoes by Speedy’s
customers is approximately 228,000 pairs. The ordering cost is $200
per order. The annual carrying cost of one pair of shoes is $3.8. Speedy
estimates the average weekly demand to be 4,750 pairs. However,
demand each week may vary with the following probability distribution:
Total demand for one week 4,250 pairs 4,500 pairs 4,750 pairs 5,000 pairs 5,250 pairs
Probability (sums to 1.00) 0.05 0.15 0.55 0.20 0.05
Speedy adopts an EOQ model to determine the number of shoes to order
from these manufacturers.
According to the supply agreements with its manufacturers, if
Speedy encounters a situation of urgent demand from customers
but the company is out of stock, Speedy can ‘rush’ the shoes from
manufacturers at an additional cost of $3.00 per pair.

Required:
a What is the optimal number of pairs of shoe per order according to
the EOQ model?
b Assume each month consists of approximately four weeks. The
agreed purchase-order lead time is one week. At what point should
Speedy reorder shoes?
c How much safety stock should Speedy hold? How will this affect
the reorder point and reorder quantity?
d Speedy is considering implementing a JIT system and believes that
JIT has advantages over the EOQ model. Do you agree and why?

Answer 1

Stole safety affect recovered level in the manner that more is the safety stode more will be the re-ordered quality it means that Re-order point will trigger out earlier.

d) Advantages of JIT over Eo6

JIT is an inventory management system which incolves receving goods as when they are required rather than carrying a larger inventory at once.

Yes I agree because following -

i) Less space needed -

with faster turn around of stods, you don't need much warehouse.

ii) Waste Reduction -

Faster turnaround of stods prevents goods becoming damages or obstole.