Question

OM 540: Supply Chain Management

Assignment 6: Inventory and Risk Pooling

                                                                                                                                                                        

Question #1

Harley-Davidson has its engine assembly plant in Milwaukee, and its motorcycle assembly plant in York, Pennsylvania. Engines are transported between the two plants using trucks, with each trip costing $1,600.  The motorcycle plant assembles and sells 100 motorcycles each day. (Assume 300 workdays in a year.)  Each engine costs $600, and Harley incurs a holding cost of 25 percent per year.

1. How many engines should Harley load onto each truck?
2. How many trips are made each year transporting engines from Milwaukee to York?
3. How many work days are there between two successive trips?
4. What is the cycle inventory of engines at the York plant?

Question #2

Weekly demand for a popular model of HP printers at a Sam’s Club store is normally distributed, with a mean of 30 and standard deviation of 20.  The store manager continuously monitors inventory and currently orders 300 printers each time the inventory drops to 200 printers.  HP currently takes four weeks to fill an order.  

1. How much safety inventory does the store carry?  
2. What CSL does Sam’s Club achieve as a result of this policy?  
3. What fill rate does the store achieve?

Question #3

Weekly demand for a Motorola cell phone at a Best Buy store is normally distributed, with a mean of 240 and standard deviation of 160.  Best Buy has a policy of ordering the cell phones in lots of 3000.  Motorola takes four weeks to deliver an order.  

If Best Buy is targeting a CSL of 95 percent and monitors its inventory continuously:

1. How much safety inventory of cell phones should Best Buy carry?  
2. What should its ROP be?

Question #4

Home Depot sells the LawnBoy T750 lawn mowers at 81 stores in the Western US.  Weekly demand for the T750 at each of the stores is identical and given by: X _~ Normal (50, 30).  Assume that the demands at the 81 stores are independent of each other.  The manufacturer’s lead time for supplying the mowers is 9 weeks.  Home Depot has a stated policy of 96% cycle service level for mowers.

1. How much safety stock is required at each store?
2. The chain is considering centralizing the inventory of the T750 to a distribution center that will serve all 81 stores.  How much safety stock would be required at the DC to provide the same cycle service level of 96%?

If the cost of each mower is $600, and Home Depot uses a 25% holding cost rate, what is the annual savings for the chain in inventory holding costs as a result of the centralization

Answer 1