Exam 14: Inventory Models

Demand for a popular athletic shoe is nearly constant at 800 pairs per week for a regional division of a national retailer.The cost per pair is $54.It costs $72 to place an order,and annual holding costs are charged at 22% of the cost per unit.The lead time is two weeks. a.What is the EOQ? b.What is the reorder point? c.What is the cycle time? d.What is the total annual cost?

Which cost would not be considered part of a holding cost?

For inventory systems with constant demand and a fixed lead time,

An office supply store open 5 days a week must determine the best inventory policy for boxes of copier paper.Weekly demand is nearly constant at 250 boxes and when orders are placed,then entire shipment arrives at once.The cost per box is $22 and the inventory holding cost is 30%.Orders are placed at a cost of $40 each,including preparation time and communication charges,and the lead time is 2 days. a.Find the optimal order quantity. b.What is the reorder point? c.How often should an order be placed? d.What is the cycle time?

Kelly's Service Station does a large business in tune-ups.Demand has been averaging 210 spark plugs per week.Holding costs are $.01 per plug per week and reorder costs are estimated at $10 per order. Kelly does not want to be out of stock on more than 1% of his orders.There is a one-day delivery time.The standard deviation of demand is five plugs per day.Assume a normal distribution of demand during lead time and a 7-day work week. a.What inventory policy do you suggest for Kelly's station? b.What is the average amount of safety stock for the reorder point in (a)? c.What are the total variable weekly costs including safety stock costs?

When there is probabilistic demand in a multi-period model,the inventory level will not decrease smoothly and can fall below 0.

Periodic review inventory systems

A gourmet food store uses a one-week periodic review system for its supply of coffee beans.There is a five-day lead time for orders,and the store will allow two stockouts per year. a.What is the probability of a stockout associated with each replenishment decision? b.What is the replenishment level if demand during the review and lead-time periods is normally distributed with mean 120 pounds and standard deviation 8 pounds? c.How many pounds of beans should be ordered if there are 42 pounds of beans on hand?

Which of the following is not implied when average inventory is Q/2,where Q is the order quantity?

Safety stock

In the periodic review model,the order quantity at each review period must be sufficient to cover demand for the review period plus the demand for the following lead time.

Inventory

Inventory position is defined as

The Tiernan Gallery and Art Museum distributes to its visitors a printed guide to its collections.There are about 18000 visitors per year.Holding costs for the brochures are 20% and it costs $30 to place an order with the printer.The printer has offered the following discount schedule: How many brochures should be printed at a time?

The time between placing orders is the lead time.

Daily demand for packages of five videotapes at a warehouse store is found to be normally distributed with mean 50 and standard deviation 5.When the store orders more tapes,the ordering cost is $42 and the orders take 4 days to arrive.Each pack of tapes costs $7.20 and there is a 24% annual holding cost for inventory.Assume the store is open 360 days a year. a.What is the EOQ? b.If the store wants the probability of stocking out to be no more than 5%,and demand each day is independent of the day before,what reorder point should be set? c.How much of your reorder point in part b)is safety stock?

If the optimal production lot size decreases,average inventory increases.

A weekly sports magazine publishes a special edition for the World Series.The sales forecast is for the number of copies to be normally distributed with mean 800,000 copies and standard deviation 60,000 copies.It costs $.35 to print a copy,and the newsstand price is $1.95.Unsold copies will be scrapped.How many copies should be printed?

To be considered as inventory,goods must be finished and waiting for delivery.

A firm that is presently using the Economic Order Quantity model and is planning to switch to the Economic Production Lot-Size model can expect