Exam 9: Inventory Management

What are the types of inventory from the perspective of how it is created? Where is each type most likely to exist in the supply chain?

Scenario 9.3 The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year. -Use the information in Scenario 9.3.What is the annual ordering cost if Talbot orders using the EOQ quantity?

Table 9.1 Inventory records show the following: -Use Table 9.1 to ascertain the veracity of this statement.Items in series U are the most C-like of all inventory SKUs.

Scenario 9.7 Cranium,Inc. ,purchases term papers from an overseas supplier under a continuous review system.The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day.It costs $60 to process each order and there is a five-day lead-time.The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level.Cranium operates 200 days per year.A normal distribution table is appended to this exam. -Use the information in Scenario 9.7.What is the reorder point R to satisfy a 98% cycle-service level?

What are the components of holding cost?

Scenario 9.7 Cranium,Inc. ,purchases term papers from an overseas supplier under a continuous review system.The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day.It costs $60 to process each order and there is a five-day lead-time.The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level.Cranium operates 200 days per year.A normal distribution table is appended to this exam. -Use the information in Scenario 9.7.What is the standard deviation of demand throughout the five-day lead-time period?

The primary reason for keeping inventories low is that inventory represents a temporary monetary investment.

Scenario 9.10 The Dolly Llama Farm keeps an average of 50 of those funny creatures on hand and each consumes a pound of grain a day,365 days per year.Grain costs $12 for a 50 pound bag and it costs the farm $10 to make a run to the feed store to pick up an order,regardless of order size.It takes the feed store four days to acquire,mix,and bag the special blend of grains necessary to make the feed the Dolly Llama Farm prefers.Storage costs for the feed runs 15% of the unit cost as the cost of money,loss due to critters,and spoilage all add up. -Refer to Scenario 9.10.There is some variability in how long it takes the feed store to whip up a batch of llama feed.The standard deviation of the feed prep is one day.The farm is willing to tolerate a 5% chance of running out of feed before they can get some more hauled in.The llamas would prefer a 0% chance,but they don't get a vote.What reorder point achieves the farm's objectives?

Scenario 9.10 The Dolly Llama Farm keeps an average of 50 of those funny creatures on hand and each consumes a pound of grain a day,365 days per year.Grain costs $12 for a 50 pound bag and it costs the farm $10 to make a run to the feed store to pick up an order,regardless of order size.It takes the feed store four days to acquire,mix,and bag the special blend of grains necessary to make the feed the Dolly Llama Farm prefers.Storage costs for the feed runs 15% of the unit cost as the cost of money,loss due to critters,and spoilage all add up. -Refer to Scenario 9.10.The actual usage for grain depends on which llamas show up at feeding time,thus there is an average need for 50 pounds of grain each day with a standard deviation of five pounds.In addition,there is some variability in how long it takes the feed store to whip up a batch of llama feed.The standard deviation of the feed prep is one day.The farm is willing to tolerate a 2% chance of running out of feed before they can get some more hauled in.The llamas would prefer a 0% chance,but they don't get a vote.What reorder point achieves the farm's objectives?

One component of the holding cost of inventory is interest.

The Lemming Company implements an aggressive marketing campaign and effectively doubles the annual demand for Model 13s.Their total annual holding cost should:

Reducing setup costs will increase the pressure to keep large inventories.

One component of the ordering cost of inventory is shrinkage.

Scenario 9.11 Demand = 50,000 units/week Standard deviation of weekly demand = 15,000 units Average lead time = 8 weeks Standard deviation of lead time: 3 weeks Cycle-service level = 80% A continuous review system is used to control inventory. A normal distribution table is appended to this exam. -Use the information in Scenario 9.11.What safety stock should the firm use for this product?

Scenario 9.9 "Gollee those cats sure go through a lot of food," Geoff exclaimed as he saw the shopping list pad that had been pre-printed with the words "cat food" a the top.He pondered a different approach to shopping for the furry little darlings,reviewed his shopping records,and discovered the following.The price of cat food has held steady at 89 cents per can.Despite feigning indifference,each of the seven cats nibbles their way through an average of one can per day,three hundred sixty five days a year.The price of gasoline has held constant at $3.50 per gallon and his pickup uses a gallon each way to the cat food store.The cost to hold a can of cat food is 10% of the unit price. -Use the information in Scenario 9.9 to determine the average pantry space occupied by cat food if each can takes up 13 cubic inches and Geoff obeys an EOQ policy for managing the cat food purchase process.

In an ABC analysis,class ________ SKUs,which typically make up about ________ % of the SKUs,account for about 80% of the dollar usage.

Which one of the following statements concerning the economic order quantity (EOQ)model is TRUE?

An assistant manager is reviewing the costs associated with one of the store's better-selling products.The data available follows. Demand = 400 units/year Order cost = $25/order Holding cost = 50¢/unit/year a.They currently order a one-year supply.What are the total annual ordering cost and holding cost for this order size? b.What would be the EOQ and its associated ordering and holding costs?

Scenario 9.9 "Gollee those cats sure go through a lot of food," Geoff exclaimed as he saw the shopping list pad that had been pre-printed with the words "cat food" a the top.He pondered a different approach to shopping for the furry little darlings,reviewed his shopping records,and discovered the following.The price of cat food has held steady at 89 cents per can.Despite feigning indifference,each of the seven cats nibbles their way through an average of one can per day,three hundred sixty five days a year.The price of gasoline has held constant at $3.50 per gallon and his pickup uses a gallon each way to the cat food store.The cost to hold a can of cat food is 10% of the unit price. -Using the information in Scenario 9.9 determine the economic order quantity for cat food.

Scenario 9.2 Shipments of Product X from a plant to a wholesaler are made in lots of 600.The wholesaler's average demand for X is 100 units per week.The lead time from the plant to the wholesaler is 4 weeks.The wholesaler pays for the shipments when they leave the plant. -Refer to Scenario 9.2.If the plant reduces its shipment lot size from 600 to 400 units and keeps its 4 week lead time,what is the wholesaler's new total cycle plus pipeline inventories?