Question

A product has a reorder point of 110 units, and is ordered four times a year. The following table shows the historical distribution of demand values observed during the reorder period.

Demand Probability

100 .3

110 .4

120 .2

130 .1

Managers have noted that stockouts occur 30 percent of the time with this policy, and question whether a change in inventory policy, to include some safety stock, might be an improvement. The managers realize that any safety stock would increase the service level, but are worried about the increased costs of carrying the safety stock. Currently, stockouts are valued at $20 per unit per occurrence, while inventory carrying costs are $10 per unit per year. What is your advice? Do higher levels of safety stock add to total costs, or not? What level of safety stock is best?

Answer #1

Action | Safety stock (ss) cost | Stockout cost | Total cost |

Reorder point:110 (ss=0) | $0 | $160(0.2*10*20*4)+$160(0.1*20*20*4) =$320 | =$320 |

Reorder point:120(ss=10) | $100(10*$10) | $80(0.1*10*20*4) | =$180 |

Reorder point:130(ss=20) | $200(20*$10) | $0 | =$200 |

The managers should not be concerned about carrying cost only,
but they should also consider that, while carrying costs rise,
stockout costs fall. Hence, the best and cheapest level of safety
stock is **10 units.**

Bombair Retail Store orders accent chairs 10 times per year from
Axium Manufacturing. The reorder point without safety stock is 100
chairs. The following demand probabilities during the lead time is
shown in the table:
Demand During Lead Time
Probability
0
0.1
100
0.1
200
0.2
300
0.4
400
0.2
The carrying cost is $30 per unit per year and the cost of a
stockout is $70 per chair per year. How much safety stock should be
carried? [9...

Sharon Ltd has in the past ordered raw
material T in quantities of 3,000 units which is half a year’s
supply. Management has instructed you, an inventory cost
consultant, to advise them as to the most desired order quantities.
The factory closes for 4 weeks annual leave per annum.
You are given the following data:
Inventory usage rate: 125 per week, Lead time: 3 weeks
Unit price: $1.50, Annual requirement: 6,000 units
Order cost: $9.00 per order, Carrying cost: $0.30...

Alexis Company uses 800 units of a product per year on a
continuous basis. The product has a fixed cost of $50 per order,
and its carrying cost is $2 per unit per year. It takes 5 days to
receive a shipment after an order is placed. And the firm wishes to
hold 10 days usage in inventory as a safety stock Calculate the EOQ
Determine the average level of inventory. (Note: Use a 365 day year
to calculate daily...

MNO has an average annual demand for red, medium polo shirts of
100,000 units. The cost of placing an order is $500 and the cost of
carrying one unit in inventory for one year is $20.
Required:
a. Use the economic-order-quantity model to determine the
optimal order size.
b. Determine the reorder point assuming a lead time of 12 days
and the store is open 250 days in the year.
c. Determine the safety stock required to prevent stockouts
assuming...

The annual demand for a product is 15,900 units. The weekly
demand is 306 units with a standard deviation of 80 units. The cost
to place an order is $33.50, and the time from ordering to receipt
is eight weeks. The annual inventory carrying cost is $0.10 per
unit.
a. Find the reorder point necessary to provide
a 99 percent service probability. (Use Excel's NORMSINV()
function to find the correct critical value for the given
α-level. Round "z" value to...

A firm uses 200,000 units of an inventory item evenly throughout
the year. The firm’s order cost is $400 per order and carrying cost
is $40 per unit per year.
(A) Suppose an order placed at the end of the day will arrive in
time before the next day’s production begins and the firm does not
keep a safety stock. How many units of this inventory item should
the firm order each time?
(B) Suppose it takes the supplier two...

The Cheap Store starts with 700 units stocks every week. The
stock is used up each week and a reorder is made to replace the
used up items. If the yearly carrying cost per unit is RM20 and the
fixed order cost is RM80. (Note: there are 52 weeks in a year).
Calculate the
i. Carrying cost
ii. Restocking Costs
iii. The economic order quantity
iv. Number of orders per year
v. DO you think that the company's inventory policy...

Diagnostic Supplies has expected sales of 50,000 units per year,
carrying costs of $2 per unit, and an ordering cost of $5 per
order.
a. What is the economic ordering quantity?
b-1. What is the average inventory?
b-2. What is the total carrying cost?
Assume an additional 40 units of inventory will be required as
safety stock.
c-1. What will the new average inventory
be?
c-2. What will the new total carrying cost
be?

Diagnostic Supplies has expected sales of 180,500 units per
year, carrying costs of $4 per unit, and an ordering cost of $10
per order. a. What is the economic ordering quantity? b-1. What is
the average inventory? b-2. What is the total carrying cost? Assume
an additional 70 units of inventory will be required as safety
stock. c-1. What will the new average inventory be? c-2. What will
the new total carrying cost be?

Bob Sean, manager at Ikea is responsible for managing the
inventory of computer desks. Bob isn't talkative about his
inventory, but you have managed to extract the following
information from him:
It costs $35 to place an order. Each computer desk costs $31.33.
Annual per unit holding cost is 30% of item value. Average daily
demand is 100 writing desks. Standard deviation of demand during
lead time is 51.96. Lead time to receive a computer desk from a
supplier is...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 20 minutes ago

asked 33 minutes ago

asked 37 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago