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Exam 14: Inventory Models

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Question 1

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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?

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a. Order 648 every ...

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Question 2

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​If lead time is longer than the review period,the order quantity at any review point is the amount needed for the inventory on hand plus all outstanding orders to reach the replenishment level.

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Question 3

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Inventory position is defined as

For the EOQ model,cycle time is the time between

The objective of the EOQ with quantity discounts model is to

​List five assumptions of the EOQ model.

Periodic review inventory systems

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?

​Explain the difference between a periodic and a continuous review system.

Inventory models in which the rate of demand is constant are called

When the reorder point r exceeds Q*,the difference is

The EOQ model

Safety stock

Bank Drugs sells Jami Michelle lipstick.The Jami Michelle Company offers a 6% discount on orders of at least 500 tubes,a 10% discount on orders of at least 1,000 tubes,a 12% discount on orders of at least 1,800 tubes and a 15% discount on orders at least 2,500 tubes. Bank sells an average of 40 tubes of Jami Michelle lipstick weekly.The normal price paid by Bank drugs is $1 per tube.If it costs Bank $30 to place an order,and Bank's annual holding cost rate is 27%,determine the optimal order policy for Bank Drugs.

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

Constant demand is a key assumption of the EOQ model.

Inventory position is defined as the amount of inventory on hand plus the amount

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?

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

Henderson Furniture sells reproductions of 18th century furniture.For a particular table,the assumptions of the inventory model with backorders are valid. D = 200 tables per year I = 25% per year C = $800 per table C_o = $80 per order C_b = $50 per table per year The store is open 250 days a year. a.What are the values for order quantity and number of planned backorders that will minimize total cost? b.What is the maximum inventory? c.What is the cycle time? d.What is total cost?