3/15/2016 Practice Problem 1: Partial Foods | Week 5 Practice Problems | CTL.

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Week 5: Inventory Management I - Deterministic Demand > Week 5 Practice

 Problems > Practice Problem 1: Partial Foods
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 Course
Overview & PRACTICE PROBLEM 1: PARTIAL FOODS
Logistics
You are responsible for managing the inventory for the trendy upscale
specialty food store, Partial Foods.  You are trying to set the inventory
 Entrance policy for one of your most popular cheeses, Mad Cow Cheddar, which
Survey comes in 1 pound wheels.   It is a stable selling cheese with an average
weekly demand of 14 wheels/week.
 Week 1:
Overview of Your fixed cost of placing an order from the farm that produces Mad Cow
Supply Chain Cheddar is $90/order and the cheese itself costs you $12.50 per wheel.  
Management &
Assume that there are 52 weeks in a year and that the annual inventory
Logistics
holding charge is 20%. 

 Week 2:
Forecasting I -
Introduction Part 1

 Week 3:
What should your economic order quantity be, in wheels? Round to the
Forecasting II -
nearest integer value.
Exponential
Smoothing
 Answer: 229
 Week 4:
Forecasting III -
Special Cases &
Extensions EXPLANATION

 Week 5:
We know that = $90/order and Demand = 14 wheels/week * 52
weeks = 728 wheels/year and = 12.50*0.20 = 2.50 $/wheel/year.
Inventory
Management I
- Deterministic = 228.94 ~ 229 wheels/order.
Demand

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Lesson 1: Part 2
Introduction to
Inventory
Management
Under this ordering policy, how many weeks on average will the Mad Cow
Lesson 2: Cheddar be on your shelf? Round to the nearest integer value.
Economic Order
Quantity
 Answer: 8
Lesson 3:
Extensions to the
EOQ Model

Economic Order
Quantity EXPLANATION
Recitation
To determine how long on average the cheese will sit on the shelf, we
Week 5 Practice need to know the order cycle length, T*, from this policy. T* = Q*/D =
Problems 229/728 = 0.314 year = 16.3 weeks. Since our demand is assumed to
Supplemental be uniform and constant (assumptions of the EOQ), then the average
Material for time is simply T*/2 = 8.16 ~ 8 weeks.
MicroMasters
I do not know what kind of cheese you like, but that seems like a long
Week 5 Graded
time!
Assignment
Homework due Mar
23, 2016 at 19:00 UTC

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Part 3

Your manager tells you that you cannot simply use all of the shelf space
you want for free. There is an opportunity cost for shelf space at Partial
Foods of $10/sqft/week and each wheel of Mad Cow Cheddar occupies
0.15 sqft of space.

What should your economic order quantity, in wheels, be now? Round to

the nearest integer value.

 Answer: 40

EXPLANATION

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We now have an additional variable cost, that of space. The original

information has not changed: = $90/order and D = 728
wheels/year. However, + $10/sqft/week * 52 weeks * 0.15
sqft/wheel = 2.50 + 78 = 80.50 $/wheel/year.

= 40.34 ~ 40 wheels/order.

At this order rate, the average shelf life = (40/728/2) = 0.0274 years =
1.42 weeks. This is a little better!

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Part 4

Your manager still thinks you order too much cheese and has limited your
shelf space to a maximum of 3 square feet. There is not back room, so all
of your Mad Cow Cheese wheels need to fit within that space.

What should your economic order quantity, in wheels, be now? Round to

the nearest integer value.

 Answer: 20

EXPLANATION

This means your order quantity cannot exceed 3 square feet. You can
fit 3 / 0.15 = 20 wheels of Mad Cow Cheddar in this space. Therefore,
that is your order quantity. This is essentially a constrained problem
now.

We could figure out how much more this is going to cost by using the
EOQ sensitivity ratio.

= 1.25 or 25% more expensive!

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