A product has a reorder point of 260 units, and is ordered ten times a year. The following table shows the historical distribution of demand values observed during the reorder period. \[\begin{array} { | c | c | } \hline \text { Demand } & \text { Probability } \\ \hline 240 & .1 \\ \hline 250 & .2 \\ \hline 260 & .4 \\ \hline 270 & .2 \\ \hline 280 & .1 \\ \hline \end{array}\] Currently, stockouts are valued at $5 per unit per occurrence, while inventory carrying costs are $2 per unit per year. Should the firm add safety stock? If so, how much safety stock should be added?

@#IMG-DLM& The current policy is not the

Perform an ABC analysis on the following set of products. \[\begin{array} { | c | c | c | } \hline \text { Item } & \begin{array} { c } \text { Annual } \\ \text { Demand } \end{array} & \text { Unit Cost } \\ \hline \text { A211 } & 1200 & \$ 9 \\ \hline \text { B390 } & 100 & \$ 90 \\ \hline \text { C003 } & 4500 & \$ 6 \\ \hline \text { D100 } & 400 & \$ 150 \\ \hline \text { E707 } & 35 & \$ 2000 \\ \hline \text { F660 } & 250 & \$ 120 \\ \hline \text { G473 } & 1000 & \$ 90 \\ \hline \text { H921 } & 100 & \$ 75 \\ \hline \end{array}\]

The table below details the contribution

Exam 12: Inventory Management

Groundz Coffee Shop uses 4 pounds of a specialty tea weekly; each pound costs $16. Carrying costs are $1 per pound per week because space is very scarce. It costs the firm $8 to prepare an order. Assume the basic EOQ model with no shortages applies. Assume 52 weeks per year, closed on Mondays. a. How many pounds should Groundz order at a time? b. What is total annual cost (excluding item cost) of managing this item on a cost-minimizing basis? c. In pursuing lowest annual total cost, how many orders should Groundz place annually? d. How many days will there be between orders (assume 310 operating days) if Groundz practices EOQ behaviour?

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Question 1

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a. Q∗ = $\sqrt { \frac { 2 \cdot 4 \cdot 52 \cdot 8 } { 1 \cdot 52 } }$ = 8. Groundz should order 8 pounds per order.
b. TC = $\frac { 4 \cdot 52 } { 8 }$ ∙ 8 + $\frac { 8 } { 2 }$ ∙ 1 ∙ 52 = 208 + 208 + 416. The firm will spend $416 annually.
c. N = $\frac { 4 \cdot 52 } { 8 }$ = 26 .Groundz should order 26 times per year.
d. Days between orders will be 310/26 or approximately every 12 working days.

Joe's Scuba Diving shop has a favorite model that has annual sales of 87. The cost to place an order to replenish inventory is $29 per order, and annual inventory costs are $14. a. What is the optimal order size? b. What is the maximum inventory level? c. What is the average inventory? d. What is the annual inventory cost? e. What are the number of orders per year?

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$\begin{array}{|l|r|}\hline\text { Annual Demand Rate, } \mathrm{D} & 87 \\\hline \text { Setup/Ordering Cost, S } &29 \\\hline \text { Holding/Carrying Cost per Unit per } & \\\text { Year, H } & \$ \quad 14.00 \\\hline \text { Unit price, $ P $}\\\hline\\\hline \text {Results }\\\hline \text { Optimum Order Quantity, } Q^{*}(\mathrm{EOQ}) & \text { A } 18.98 \\\hline \text { Maximum Inventory, } \mathrm{Q}^{*} & \mathrm{~B} 18.98 \\\hline \text { Average Inventory, } \mathrm{Q}^{*} / 2 & \mathrm{C} 9.49 \\\hline \text { Number of Orders, D/Q } & \mathrm{E} 4.58 \\\hline\\\hline \text { Annual Holding Cost, } \mathrm{HQ}^{*} / 2 & \$ 132.89 \\\hline \text { Annual Order Cost, DS/Q } & \$ 132.89\\\hline\\\hline \text { Annual Unit Costs, } \mathrm{PD} & \$ 0.00 \\\hline \text { Total Annual Cost, } \mathrm{T}_{\mathrm{C}} & \mathrm{D} \$ 265.79\\\hline\end{array}$

Service level is the complement of the probability of a stockout.

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Joe's Camera shop has a favorite model that has annual sales of 145. The cost to place an order to replenish inventory is $25 per order, and annual inventory costs are $20. Assume the store is open 350 days per year. a. What is the optimal order size? b. What is the optimal number of orders per year? c. What is the optimal number of days between orders? d. What is the annual inventory cost?

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Question 4

________ is a continuing reconciliation of inventory with inventory records.

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Question 5

A product has a reorder point of 260 units, and is ordered ten times a year. The following table shows the historical distribution of demand values observed during the reorder period. Demand Probability 240 .1 250 .2 260 .4 270 .2 280 .1 Currently, stockouts are valued at $5 per unit per occurrence, while inventory carrying costs are $2 per unit per year. Should the firm add safety stock? If so, how much safety stock should be added?

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Question 6

Which of the following is not one of the four main types of inventory?

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Question 7

________ is a method for dividing on-hand inventory into three classifications based on annual dollar volume.

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Question 8

Which category of inventory holding costs is much higher than average for rapid-change industries such as PCs and cell phones?

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Question 9

A newspaper boy is trying to perfect his business in order to maximize the money he can save for a new car. Paper sales are normally distributed, with a mean of 100 and standard deviation of 10. He sells papers for $.5 and pays $.30 for them. Unsold papers are trashed with no salvage value. How many papers should he order each day and what % of the time will he experience a stockout? Are there any drawbacks to the order size proposed and how could the boy address such issues?

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Question 10

A(n) ________ system triggers inventory ordering on a uniform time frequency.

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Question 11

Most inventory models attempt to minimize

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Question 12

Safety stock in inventory systems depends only on the average demand during the lead time.

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Question 13

Which of the following statements regarding Amazon.com is false?

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Question 14

Amazon's original concept of operating without inventory has given way to a model in which Amazon is a world-class leader in ________.

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Question 15

Perform an ABC analysis on the following set of products. Item Annual Demand Unit Cost A211 1200 \ 9 B390 100 \ 90 C003 4500 \ 6 D100 400 \ 150 E707 35 \ 2000 F660 250 \ 120 G473 1000 \ 90 H921 100 \ 75

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Question 16

Consider a local club selling Christmas trees. If trees cost $15 and sell for $60 with no salvage value, what is the ideal service level? If salvage value is increased to $5, what is the change in service level?

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Question 17

In the quantity discount model, the cost of acquiring goods (product cost) is not a factor in determining lot size.

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Question 18

The reorder point is the inventory level at which action is taken to replenish the stocked item.

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Question 19

In a safety stock problem where both demand and lead time are variable, demand averages 150 units per day with a daily standard deviation of 16, and lead time averages 5 days with a standard deviation of 1 day. The standard deviation of demand during lead time is approximately

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Question 20

Exam 12: Inventory Management

Service level is the complement of the probability of a stockout.

________ is a continuing reconciliation of inventory with inventory records.

Which of the following is not one of the four main types of inventory?

________ is a method for dividing on-hand inventory into three classifications based on annual dollar volume.

Which category of inventory holding costs is much higher than average for rapid-change industries such as PCs and cell phones?

A(n) ________ system triggers inventory ordering on a uniform time frequency.

Most inventory models attempt to minimize

Safety stock in inventory systems depends only on the average demand during the lead time.

Which of the following statements regarding Amazon.com is false?

Amazon's original concept of operating without inventory has given way to a model in which Amazon is a world-class leader in ________.

Perform an ABC analysis on the following set of products. Item Annual Demand Unit Cost A211 1200 \ 9 B390 100 \ 90 C003 4500 \ 6 D100 400 \ 150 E707 35 \ 2000 F660 250 \ 120 G473 1000 \ 90 H921 100 \ 75

Consider a local club selling Christmas trees. If trees cost $15 and sell for $60 with no salvage value, what is the ideal service level? If salvage value is increased to $5, what is the change in service level?

In the quantity discount model, the cost of acquiring goods (product cost) is not a factor in determining lot size.

The reorder point is the inventory level at which action is taken to replenish the stocked item.

In a safety stock problem where both demand and lead time are variable, demand averages 150 units per day with a daily standard deviation of 16, and lead time averages 5 days with a standard deviation of 1 day. The standard deviation of demand during lead time is approximately

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