Exam 12: Inventory Models

Any particular service level constraint in a probabilistic inventory model can be equivalently formulated with an appropriate unit holding cost

Exhibit 12-1 An appliance store sells 500 units of a particular type of dishwasher each year.The demand for this product is essentially constant throughout the year.The store orders its products from a regional supplier,and it typically takes two weeks for the dishwashers to arrive after an order has been placed.Each time an order is placed,an ordering cost of $1000 is incurred.Each dishwasher costs the hardware store $300 and retails for $550.The store's annual cost of capital is estimated to be 7% per year. -Refer to Exhibit 12-1.Suppose there is a storage cost of $10 per unit.Make the appropriate change to your Solver model or EOQ formula,and find the optimal order quantity in that case.

In an economic order quantity (EOQ)model with shortages allowed,the decision variables are:

Exhibit 12-2 A moving company purchases large cardboard shipping boxes from a supplier.The company uses approximately 10,000 of these boxes for packing customers' belongings each year,and demand for the boxes is essentially constant throughout the year.The box supplier offers the following pricing schedule,based on the quantity of boxes ordered: The fixed cost of placing an order is $50,and the company's cost of capital is 7% per year. -Refer to Exhibit 12-2.Suppose there is a storage cost of $1 per unit.Make the appropriate change to your Solver model and find the optimal order quantity in that case.Does the unit purchasing price change?

Exhibit 12-1 An appliance store sells 500 units of a particular type of dishwasher each year.The demand for this product is essentially constant throughout the year.The store orders its products from a regional supplier,and it typically takes two weeks for the dishwashers to arrive after an order has been placed.Each time an order is placed,an ordering cost of $1000 is incurred.Each dishwasher costs the hardware store $300 and retails for $550.The store's annual cost of capital is estimated to be 7% per year. -Refer to Exhibit 12-1.Check your answer from Solver using the economic order quantity (EOQ)formula.Do you get the same result? Show your work.

The time it takes for an order to arrive at facility is called the stockout time.

The annual shortage cost in an economic order quantity (EOQ)model with shortages allowed is pb²/Q.

Which of the following is one of the two ways to "cost" shortages in inventory modeling?

In specifying an (R,Q)ordering policy,the choice of R depends largely on:

In a probabilistic inventory model,there is no guarantee that the planned safety stock will exist.

Exhibit 12-2 A moving company purchases large cardboard shipping boxes from a supplier.The company uses approximately 10,000 of these boxes for packing customers' belongings each year,and demand for the boxes is essentially constant throughout the year.The box supplier offers the following pricing schedule,based on the quantity of boxes ordered: The fixed cost of placing an order is $50,and the company's cost of capital is 7% per year. -An electronics retailer sells 2,500 units of a particular type of DVD player each year,with demand being essentially constant throughout the year.The retailer orders its DVD players from a regional supplier,and each time an order is placed an ordering cost of $100 is incurred.However,the retailer also has the option to make an investment to reduce the ordering costs.For each $2,000 it invests,ordering costs will decrease by 10%,down to a minimum of $30,at which point the cost cannot be further reduced.The unit cost of the each DVD player is $300 and there are no storage costs.Assuming a 7% cost of capital,formulate a Solver model to optimize the retailer's optimal order policy.How much,if any,should be invested in ordering cost reductions and what is the resulting order cost?

When customer demand is known,the resulting inventory model is called:

An order cycle begins each time an order arrives and ends just before the next order arrives.

Critical fractile analysis enables you to see how net profit is distributed for a given order quantity,but it isn't well suited to finding the optimal order quantity.

The annual ordering cost in the economic order quantity (EOQ)model is:

Exhibit 12-3 The North Slope clothing store chain sells approximately 26,000 units of its most popular cotton sweater each year.North Slope buys these sweaters from a manufacturer located in Canada.The fixed cost of placing an order for this particular product is $200.North Slope pays $10 for each cotton sweater.The company's cost of capital is 11%,and the cost of storing a sweater for one year is $1.10.While North Slope prefers not to backlog customer demand,management of the company believes that it can afford to run out of sweaters on an occasional basis.The company estimates that the shortage cost per sweater per year is about $20. -Refer to Exhibit 12-3.Suppose again that the annual demand for the sweaters is not known with certainty,but rather is estimated to be normally distributed with mean 26,000 and standard deviation 2,000.However,this time,formulate a Solver model to find the optimal (R,Q)policy to ensure that at least 99% of customer demands are met with existing inventory.What is the policy,and what is the total annual cost in that case?

The only real cost benefit from synchronizing orders for several products is reduced setup costs.

The basic economic order quantity (EOQ)model can be formulated as a linear model in Solver.

Which of the following is not one of the factors which influence the decision about how much safety stock a company should hold?

Exhibit 12-2 A moving company purchases large cardboard shipping boxes from a supplier.The company uses approximately 10,000 of these boxes for packing customers' belongings each year,and demand for the boxes is essentially constant throughout the year.The box supplier offers the following pricing schedule,based on the quantity of boxes ordered: The fixed cost of placing an order is $50,and the company's cost of capital is 7% per year. -Refer to Exhibit 12-2.Assuming there are no storage costs,formulate a Solver model and find the optimal order quantity.