Exam 14: Inventory Models

The maximum inventory with backorders is

Constant demand is a key assumption of the EOQ model.

As lead time for an item increases,the cycle time increases.

A lawn and garden shop that is open for business seven days a week orders bags of grass seed every OTHER Monday.Lead time for seed orders is 5 days.On Monday,at ordering time,a clerk found 112 bags of seed in stock,and so he ordered 198 bags.Daily demand for grass seed is normally distributed with a mean of 15 bags and a standard deviation of four bags. The manager would like to know what the probability is that a grass seed stockout will occur before the next order arrives.

The cost of overestimating demand is usually harder to determine than the cost of underestimating demand.

Zip Games purchases blank DVD disks onto which it copies its software for sale through its mail order operation.A disk costs Zip $.20.Processing an order for more disks cost $15.Zip uses 60000 disks annually,and the company has a 25% cost of capital. a.Find the optimal order quantity. b.How many orders are placed annually? c.How frequently will orders be placed?

The Super Discount store (open 24 hours a day,every day)sells 8-packs of paper towels,at the rate of approximately 420 packs per week.Because the towels are so bulky,the annual cost to carry them in inventory is estimated at $.50.The cost to place an order for more is $20 and it takes four days for an order to arrive. a.Find the optimal order quantity. b.What is the reorder point? c.How often should an order be placed?

The single-period inventory model is most applicable to items that are perishable or have seasonal demand.

If an item's per-unit backorder cost is greater than its per-unit holding cost,no intentional shortage should be planned.

Every year in early October Steven King buys pumpkins of one size from a farmer in Maine and then hires an artist to carve bewitching faces in them.He then tries to sell them at his produce stand in a public market in Boston. The farmer charges Steven $2.50 per pumpkin and the artist is paid $2.00 per carved pumpkin.Steven sells a carved pumpkin for $8.00.Any pumpkins not sold by 5:00 p.m.on Halloween are donated to Steven's favorite children's hospital.Steven pays the artist $0.75 per pumpkin to rush the pumpkins to the hospital for the youngsters to enjoy. Steven estimates the demand for his pumpkins this season to be uniformly distributed within a range of 30 to 70. a.How many pumpkins should Steven have available for sale? b.Based on your answer to (a),what is the probability that Steven will be short five or more pumpkins?

The EOQ model

Periodic review systems require smaller safety stock levels than corresponding continuous review systems.

The Fitness Shop is considering ordering a special model exercise machine.Each unit will cost the shop $410 and it will sell for $750.Any units not sold at the regular price will be sold at the year-end model clearance for $340.Assume that demand follows a normal probability distribution with $\mu$ = 20 and $\sigma$ = 6.What is the recommended order quantity?

The economic production lot size model is appropriate when

Annual purchase cost is included in the total cost in

Show the total cost expression and calculate the EOQ for an item with holding cost rate 18%,unit cost $8.00,annual demand of 40000,and ordering cost of $48.

Kellam Images prints snack food bags on long rolls of plastic film.The plant operates 250 days a year.The daily production rate is 6000 bags,and the daily demand is 3500 bags.The cost to set up the design for printing is $300.The holding cost is estimated at 2 cents per bag. a.What is the recommended production lot size? b.If there is a five-day lead time to set up the line,what is the recommended reorder point?

When demand is independent,it is not related to demand for other components or items produced by the firm.

Chez Paul Restaurant orders special Styrofoam "doggy bags" for its customers once a month and lead time is one week.Weekly demand for doggy bags is approximately normally distributed with an average of 120 bags and a standard deviation of 25.Chez Paul wants at most a 3% chance of running out of doggy bags during the replenishment period.If he has 150 bags in stock when he places an order,how many additional bags should he order? What is the safety stock in this case?

The EOQ model is insensitive to small variations or errors in the cost estimates.