Question

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 3 days. Target service level is 94%. Ikea is open 5 days a week, 52 weeks a year. The company follows a continuos review policy.

a) Please help bob out by determining the order Q, reorder point and the safety stock for computer desks.

i) Order quantity

ii) Reorder point

iii) Safety Stock

b) Bob's supervisor, Sean believes that the service level should be 98%, instead of 94%. and wants bob to reasses the appropriate order quantity and reorder point. Should the order quantity change? Please tell Bob what needs to be recomputed and what the new value would be.

i) Order Quantity

ii) Reorder point

iii) Safety Stock

Answer #1

Answer to question a :

Following details have been provided :

Annual demand of writing desks = D = 100 / day x 5 days/ week x 52 weeks = 26000 writing desks

Order placement cost = Co = $35

Annual unit holding cost = Ch = 30% of $31.33 = $9.399 per unit ( $ 9.4 per unit rounded to 1 decimal place)

Therefore, Order quantity

= square root ( 2 x Co X D / Ch )

= square root ( 2 x 35 x 26000/ 9.4)

= 440

Z value for 94% service level = NORMSINV ( 0.94 ) = 1.5547

Standard deviation of demand during lead time = 51.96

Therefore , Safety stock = Z value x standard deviation of demand during lead time = 1.5547 x 51.96 = 80.78 ( 81 rounded to nearest whole number )

Reorder point = Daily demand x Lead time ( days ) + safety stock = 100 x 3 + 81 = 381

ORDER QUANTITY FOR COMPUTER DESKS = 440 |

REORDER POINT = 381 |

SAFETY STOCK = 81 |

Answer to question b :

Order quantity will remain UNCHANGED with change in service level.

What will be affected by change in service level are Safety stock and reorder level

Service level = 98 %

Corresponding Z value = NORSINV ( 0.98 ) = 2.0537

Standard deviation of demand during lead time = 51.96

Therefore , revised safety stock = 2.0537 x 51.96 = 106.71 ( 107 rounded to nearest whole number )

Reorder point = Daily demand x Lead time ( days ) + safety stock – 100 x 3 + 107 = 407

REVISED REORDER POINT = 407 |

SAFETY STOCK = 107 |

1) Greg Fletcher, the materials manager at Easy Furniture Inc.,
is responsible for managing the inventory of writing desks. Greg
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 writing 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 writing desk...

An inventory item of XYZ Manufacturing has an average
daily demand of 10 units with a maximum daily demand of 12 units.
The economic order quantity is 200 units. Without safety stocks,
the reorder point is 50 units. Safety stocks are set at 94
units.
Required:
a. Determine the reorder point with safety stocks.
b. Determine the maximum inventory level.
c. Determine the average lead time. d. Determine the maximum lead
time

You manage inventory for your company and use a continuous
review inventory system to control reordering items for stock. Your
company is open for business 300 days per year. One of your most
important items experiences demand of 20 units per day, normally
distributed with a standard deviation of 3 units per day. You
experience a lead time on orders from your supplier of six days
with a standard deviation of two days. The unit price, regardless
of order size,...

Daily demand for neckties at a MegaMart store is normally
distributed with a mean of 20 units and a standard deviation of 7.
The supplier, Suits Galore, takes on average about 9 days to supply
a MegaMart order. The standard deviation of lead time is 3 days.
MegaMart is targeting a customer service level of 95 percent (z =
1.65) and monitors its inventory continuously. How much safety
inventory of neckties should MegaMart carry? What should their
reorder point (ROP)...

The manager of a company is facing an inventory
problem with regard to an item whose demand is known to be evenly
distributed with an annual value of
8,000 units. The cost of placing an order is Rs 50 while the annual
carrying cost of one unit in inventory is Rs 5. Further it is known
that the lead time is uniform and equals 8 working days and that
the total working days in a year is 320 days.
Using...

Procurement manager Ikbal is working on preparing a 10-day
inventory management and order schedule for Dragon Ball Inc. The
company has the following cost structure and demand structure:
solve in excel and show the formula used in step by step
format :
Setup(order) cost is $30, unit product cost is $20 and planned
holding fraction (h) is 10%. Orders take 3 days to arrive to
facility and they typically hold a 10% of lead time demand as
safety stock. 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...

Problem 3 (Variation & Safety Stock)
Period
Demand
1
1200
2
1000
3
800
4
900
5
1400
6
1100
7
1100
8
700
9
1000
10
800
By using excel
Average=1000
STDEV=211
Assume the lead time is one period and that the
hospital wants a 99.90% service level.
Please calculate the following questions:
a) Average demand during lead time
b) Appropriate safety stock
c) The reorder point (stock quantity in inventory that would
trigger the order)

Hershey Company uses quantitative models for inventory control.
For canned syrup, the annual demand is 8,000 cases. The supplier is
500 miles away, and it usually takes three days to get an order
filled. The average order costs $16 to process and the carrying
cost per case is $40 per year. The store is open 300 days a
year.
A. Determine the economic order quantity.
B. Determine the reorder point if a safety stock of 24 cases is
desired.

Question 11.6
The materials manager of an ambulatory surgery center is looking
to determine the appropriate order quantity and reorder points for
customized surgical kits. A custom surgical kit costs $50 to order,
and the annual carrying cost is 10 percent of the product cost.
Annual demand for surgical kist is 3,600 and the purchase price is
$200. Lead time for delivery is two weeks.
a. What is the economic order qualtity for surgical kits?
b. What is the length...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 15 minutes ago

asked 44 minutes ago

asked 45 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour 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