Exam 8: Inventory Models

By what amount does adding safety stock increase annual inventory costs?

In the single period inventory model, if the unit salvage value equals the unit cost of the good, the optimal service level will be:

In the basic economic order quantity (EOQ) model, if monthly demand is a constant 430 units, the order quantity is 144 (12 dozen), and the firm operates during fifty five-day weeks a year, the cycle time will be approximately:

In the continuous review system, order quantity tends to be fixed, and order time is variable.This is reversed in a periodic review system.

In the production lot size model, the maximum inventory level (M) is lower than in the EOQ model.Why? By how much?

In the production lot size model:

Anderson Supply Company sells windows and French doors.Its most popular French door model is a six foot unit, which it purchases from Marvel doors.The units cost Anderson $500 each and sell for $700 each.Anderson uses a 22% annual holding cost rate and the cost of placing an order with Marvel for the doors is $200.If Anderson runs out of stock of doors it estimates that it incurs a goodwill cost of $15 per unit for each week a customer must wait for the door.The fixed administrative cost to process a backorder isestimated to be $5.Anderson sells an average of 30 units per week and the lead time for delivery of the doors is approximately two weeks. A.Determine the optimal order quantity and reorder point for the doors. B.Approximately what percentage of customers will have to wait for their units?

A distributor of consumer appliances wants to calculate the reorder point for a popular model of microwave oven.It operates 365 days a year, and wishes to maintain a 98% unit service level.OtherAnnual demand: $\quad 300$ units Lead time: $\quad 5$ days Standard deviation of demand during lead time: 7 units Order quantity $\left( \mathrm { Q } ^ { * } \right) : 25$ A.What is the reorder point, R? B.What major assumption underlies the application of this technique? C.Is the safety stock suggested here different than it would be for a cycle service level of 98%?

When employing A,B,C inventory classification, would you use EOQ models for type C items? Explain.

If you compare EOQ with the production lot size model, the optimal order quantity and the holding costs differ by the factor

The closer the unit salvage value is to the per unit item cost, the higher the optimal order quantity will be when using the single period inventory model.

Your major competitor, Grause's Sofa Factory, just went out of business with a large number of unfilled backorders.Many Grause's customers have lost their deposits.Your sales staff is creating a marketing campaign targeting Grause's customer base.How might you temporarily modify the numbers used in your own planned shortage model?

An inventory policy has two components: the order quantity and the reorder point.

Actual demand may exceed recorded sales.

In the basic economic order quantity (EOQ) model, at Q* the estimated total annual holding cost:

Garner is your sole supplier of gremmels, a key component in the Farfel unit your company produces and sells.Formerly, you ordered from Garner 800 units monthly, to meet an annual need (demand) for 9600 units.Purchase cost was $3.00 per unit.Now, however, Garner is offering discounts of 7% on orders of 1500 or more, and 15% on orders of 3000 units or more.Orders are placed and filled at a cost of $32 per order.Inventory holding cost is estimated at 20% of purchase cost, per item, per year.Under the new discount plan, what is your best strategy?

What are the three typical types of inventory process classifications?

Insufficient inventory should be avoided if at all possible since it can result in lost business.

What advantage does an (R,M) model have over an (R,Q) model?

When compared with the maximum inventory level of the economic order quantity (EOQ) model, the maximum inventory level of the production lot size model is: