PROBLEM: INVENTORY MANAGEMENT (Chapter 12)

Problem-01:
Fred Jacobs, assistant manager of Home and Hearth, is reviewing the cost associated with the store’s best-selling frying pan. The
data available to Mr. Jacobs concerning this frying pan follow.

Demand = 20units/week
Order cost = $75/ order
Holding cost = $15/ unit/yr.
Home and Hearth operates 50 weeks per year.
a) The current order quantity is 125 units per order. What is the annual ordering Cost, holding cost and total cost?
b) Jacobs has recently learned of the economic order quantity in his Operations management class. If Home and Hearth
implemented the EOQ, what are the changes Jacob found in ordering cost, holding cost and total cost?

Problem-02: (Solved problem 3 page 436 krajewski)

A regional warehouse purchases hand tools from various suppliers and than distribute them on demand to retailers in the region.
The warehouse operates 5 days per week, 52 weeks per year. The following data are available for a particular item.

Average daily demand = 100 units

Standard deviation of daily demand = 30 units
Lead time = 3 days
Holding cost = $ 9. 4/unit/year
Ordering cost = $ 35/order
Cycle-service level = 92 % (Z = 1.4 )
Current on-hand inventory is = 380 units with no open orders or backorders
a) What is the economic order quantity (EOQ)? What would be the average time between orders?
b) What is the desired safety stock level if the company has a policy of maintaining a 92 percent cycle-service level?
c) What is the reorder point if the company decides to have a 92 percent Cycle-service level?
d) Current on-hand inventory is = 380 units with no open orders or backorders and an inventory withdrawal of 10 units
was just made. Is it time to reorder?
e) If on-hand inventory is 40 units, there is an open order for 440 units and there are no back orders, should a new order
be placed?

Problem-03: (Solved problem 4 page 437 krajewski)

Suppose that a periodic review system is used at the warehouse, but otherwise the data are the same as in problem 3
a) What is the value of period P on the basis of EOQ.
b) What is the desired safety stock in P system?
c) What is the value of the target inventory level?
d) It’s time to review the item. On-hand inventory is 40 units. There is a schedule receipt of 440 units, and there is no
backorders. How much should be reordered?

Problem-04: (Exercise problem 7 page 441 krajewski)

Sam’s Cat Hotel operates 52 weeks per year, 6 days per week and uses a continuous review system. It purchases kitty litter for $
11.7 per bag. The following information is available about these bags.
Demand = 90 bags/week
Order cost = $54/ order
Annual Holding cost = 27% of the cost.
Desired Cycle-service level = 80 %
Lead time = 3 weeks
Standard deviation of weekly demand= 15 bags
Current on hand inventory is 320 bags, with no open orders or back orders.
a) What is the economic order quantity (EOQ)? What would be the average time between orders?
b) What is the desired safety stock level?
c) What is the reorder point?
d) An inventory withdrawal of 10 bags was just made. Is it time to reorder?
e) The store currently uses a lot size of 500 bags. What is the annual holding cost, ordering cost and total cost of this
policy?
f) What would be the annual cost saved by shifting from 500 bags lot size to EOQ?
Problem-05: (Exercise problem 16 page 442 krajewski)
Suppose that Sam’s Cat Hotel in problem 4uses a P system instead of Q system, but otherwise the data are the same
as in problem 4.

a) What P and T should be used? Round to the nearest week.

b) How much more safety stock is needed than with a Q system?

c) It is time for periodic review. How much kitty litter should be re-ordered?

Problem-06: (Exercise problem 17 page 442 krajewski)

Your firm uses a continuous review system and operates 52 weeks per year. One of the SKUs has the following
characteristics.

Demand = 20,000 units/year

Ordering and set-up cost = $ 40 per order
Holding cost = $ 2 per unit per year
Lead time =2 weeks
Cycle service level = 95%
Demand is normally distributed with a Standard deviation of weekly demand of 100 units.
Current on-hand inventory is 1040 units, with no scheduled receipt and no backorders.

a) Calculate the item’s EOQ. What is the average time between orders in weeks?
b) Find the safety stock and re-order point that provides a 95% cycle service level.
c) For these policies, what are the annual cost of (i) holding the cycle inventory and (ii) placing orders.
d) A withdrawal of 15 units just occurred, is it time to re-order?

Problem-07: (Exercise problem 18page 442 krajewski)

Suppose that your firm uses a periodic review system but otherwise the data are the same as in problem 8.
a) Calculate the P that gives approximately the same number of orders per year as the EOQ. Round your
answer to the nearest week
b) Find the safety stock and the target inventory level that provide a 95% cycle service level.
c) How much larger is the safety stock than with a Q system?

Problem-08: (Exercise problem 22 page 443 krajewski)

5. A Golf specialty wholesaler operates 50 weeks per year. Management is trying to determine an inventory
policy for its 1-irons which have the following characteristics:

Demand = 2000 units/year

Ordering and set-up cost = $ 40 per order
Holding cost = $ 5 per unit per year
Lead time =4 weeks
Standard deviation of weekly demand = 3 units
Cycle service level = 90% (Z = 1.4)
a) If the company uses a periodic review system, what should P and T be? Round P to the nearest weeks.
b) If the company uses a continuous review system, what should R be?
Problem-04: (Exercise problem 7 page 441 krajewski)

Sam’s Cat Hotel

a. Economic order quantity
d = 90/week

D = (90 bags/week)(52 weeks/yr) = 4,680

S = $54

Price = $11.70

H = (27%)($11.70) = $3.16

2 DS 2(4,680)($ 54)
EOQ    159,949.37
H $3.16 = 399.93, or 400 bags.

Time between orders, in weeks

Q 400
  0.08547 years  4.44 weeks
D 4680

b. Reorder point, R
R = demand during protection interval + safety stock

Demand during protection interval = d L = 90 * 3 = 270 bags

Safety stock = zdLT

When the desired cycle-service level is 80%, z  084

. .

 dLT   d L = 15 3 = 25.98 or 26

Safety stock = 0.84 * 26 = 21.82, or 22 bags

R  270  22  292

c. Initial inventory position = OH + SR – BO = 320 + 0 – 0

320 – 10 = 310.

Because inventory position remains above 292, it is not yet time to

place an order.
 d. Annual holding cost Annual ordering cost
Q 500 D 4, 680
H 27% $11.70 S $54
2 2 Q 500
 $789.75  $505.44

When the EOQ is used these two costs are equal. When Q  500 , the
annual holding cost is larger than the ordering cost, therefore Q is too
large. Total costs are $789.75 + $505.44 = $1,295.19.

e. Annual holding cost Annual ordering cost

Q 400 D 4, 680
H 27% $11.70 S $54
2 2 Q 400
 $631.80  $631.80

Total cost using EOQ is $1,263.60, which is $31.59 less than when the
order quantity is 500 bags.

Problem-05: (Exercise problem 16 page 442 krajewski)

Sam’s Cat Hotel with a P system
a. Referring to Problem 7, the EOQ is 400 bags. When the demand rate
is 15 per day, the average time between orders is (400/15) = 26.67 or
about 27 days. The lead time is 3 weeks 6 days per week = 18 days.
If the review period is set equal to the EOQ’s average time between
orders (27 days), then the protection interval (P + L) = (27 + 18) =
45 days.
For an 80% cycle-service level

z = 0.84

 P L   d P  L

 P  L  (6.124) 27  18 = 41.08

Safety stock = z P  L = 0.84(41.08) = 34.51 or 35 bags

T = Average demand during the protection interval + Safety stock

T = (15*45) + 35 = 710

b. In Problem 7, the Q system required a safety stock of 22 bags to

achieve an 80% cycle-service level. Therefore, the P system requires
a safety stock that is larger by (35 – 22) = 13 bags.
c. From Problem 7, inventory position, IP = 320.
 The amount to reorder is T – IP = 710 – 320 = 390.

Problem-06: (Exercise problem 17 page 442 krajewski)

Continuous review system.
a. Economic order quantity.
2 DS 2  2, 000   40 
EOQ    894.4
H 2 or 894 units

Time between orders (TBO) = Q/D = 894/20,000 = 0.0447 years =

2.32 weeks

b. Weekly demand = 20,000/52 = 385 units

For a 95% cycle-service level, z = 1.65

z d L
Safety stock: = (1.65)(100) 2 = 233.34, or 233 units

Now solve for R, as

R = d L + Safety stock = 385(2) + 233 = 1,003 units

c. cost

i. Annual holding cost of cycle inventory

Q 894
H  2   $894.00
2 2

ii. Annual ordering cost

D 20,000
S $40  $894.85
Q 894

d. With the 15-unit withdrawal, IP drops from 1,040 to 1,025 units.

Because this level is above the reorder point (1,025 > 1,003), a new
order is not placed.

Problem-07: (Exercise problem 18page 442 krajewski)

Periodic review system

e. From Problem 17,
2 DS 2  20, 000   40 
EOQ    894.4
H 2 or 894 units

Number of orders per year = D Q = 20,000/894 = 22.4 orders per

year.
 EOQ 894
P   0.0447 years  52 weeks year  2.3244
D 20,000 weeks

P is rounded to 2 weeks.

f. For a 95% cycle-service level, z = 1.65. Therefore

Safety stock  z P  L

 P L   d P  L

 P  L  (100) 2  2 = 200 units

Safety stock = 1.65(200) = 330 units,

T = Average demand during the protection interval + Safety stock

T = (385 * 4) + 330 = 1,870 units

g. In Problem 17, with a Q system the safety stock is 233 units.

Therefore, (330 – 233) = 97 more units of safety stock are needed.

2. Problem-08: (Exercise problem 22 page 443 krajewski)

Golf specialty wholesaler
a. Periodic Review System
2 DS 2200040
EOQ    178.88
H 5 or 179 1-irons

EOQ 179
P   0.0895 years  4.475
D 2000 or 4.0 weeks

When cycle-service level is 90%, z = 1.28.

Weekly demand is (2,000 units/yr)/(50 wk/yr) = 40 units/wk

L = 4 weeks

Safety stock:

z  P  L  z d P  L = (1.28) (3) 4  4 = 10.86, or 11 irons

T = d (P+L) + Safety stock

= 40(4+4) + 11 = 331 irons.

 b. Continuous review system
Safety stock = z d L = (1.28)(3) 4 = 1.28(3)(2) = 7.68, or 8 irons

R = d L + Safety stock = 40(4) + 8 =168 iron

PROBLEM: LEAN MANUFACTURING SYSTEM (Chapter 8)

 The number of Kanban card is

d = Expected daily demand

w=Average waiting time during processing
P = Average processing time per container
c = Quantity in a std. container
α = A policy variable that reflects the efficiency of the workstations

Problem-01: (Example 8.1 page 309 krajjewski)

The westerville Auto parts company produces rocker-arm assemblies for use in the steering and suspension system
of four wheel drive trucks. A typical container of parts spends 0.02 day in processing and 0.08 day in material
handling and waiting during its manufacturing cycle. The daily demand for the part is 2000 units. Management
believes that demand for the rocker-arm assembly is uncertain enough to warrant a safety stock equivalent of 10
percent of its authorized inventory.
(a) If there are 22 parts in each container, how many Kanban cards sets (production order and withdrawal cards)
should be authorized?
(b) Suppose that a proposal to revise the plant layout would cut materials handling and waiting time per container to
0.06 day. Hoe many card sets would be needed

Problem-02: (Solved problem page 316 krajjewski)

A company using a kanban system has an inefficient machine group.. For example, the daily demand for part L105A
is 3000 units. The average waiting time for a container of parts is 0.8 day. The processing time for a container of
L105A is 0.2 day and a container holds 270 units. Currently 20 containers are used for this item.

a) What is the value of the policy variable, α?

b) What is the total planned inventory?

c) Suppose that the policy variable, α was 0. How many containers would be needed now? What is the effect
of the policy variable in this example?
Problem-03: (Exercise problem 2 page 317 krajjewski)

A fabrication cell at Spradley’s Sprockets uses the pull method to supply gears to an assembly lines. George Jitson is
in charge of the assembly line which requires 500 gears per day. Containers typically waits 0.2o day in the
fabrication cell. Each container holds 20 gears and one container requires 1.8 days in machine time. Setup times are
negligible. If the policy variable for unforeseen contingencies is set at 5 percent, how many containers should Jitson
authorize for the gear replenishment system?

Problem-04: (Exercise problem 3 page 317 krajjewski)

You are asked to analyse the kanban system of LeWin, a French manufacturer of gaming devices. One of the
workstations feeding the assembly line produces part M670N. The daily demand for M670N is 1,800 units. The
average processing time per unit is 0.003 day. LeWin’s record show that the average container spends 1.03 days
waiting at the feeder workstation. The container for M670N can hold 300 units. Twelve containers are authorized for
the part.

a) Find the policy variable, α, that expresses the amount of implied safety stock in this system

b) Use the implied value of α from part (a) to determine the required reduction in waiting time if one container
was removed. Assume that all other parameters remain constant.

Problem-05: (Exercise problem 4 page 317 krajjewski)

An assembly line requires two components: gadjits and witjits. Gadjits are produced by center 1 and widjits by
center 2. Each unit of end item called a jit-together, requires 3 gadjits and 2 widjits. The daily production quota on
the assembly line is 800 jit-togethers.

The container of gadjit s holds 80 units. The policy variable for center is set at 0.09. The average waiting time for a
container of gadjits is 0.09 day and 0.06 day is needed to produce a container. The container for widjits holds 50
units and the policy variable for center 2 is 0.08. The average waiting time for container of widjits is 0.14 day, and
the time required to process a container is 0.20 day.

a) How many containers are needed for gadjits?

b) How many containers are needed for widjits?

Problem-06:

A toy company uses a Kanban system to make a metal fastener of several toys. The waiting
time for a container of the fasteners during production is 0.25 day; average processing time
is 0.15 day per container. Each container holds 200 fasteners. The daily demand of the
fastener is 2000 units. Using an efficiency factor of 5%, calculate the number of Kanban card
sets needed for the fasteners.
Problem: 03

Spradleys’ Sprockets
d ( w   )(1   )
k= c

500(0.20  1.80)(1  0.05)

k= 20

k = 52.5

Problem: 04

LeWin
a. Solving for implied policy variable, 
d ( w   )(1   )
k= c

1,800  1.05  0.003  300   1  a 

12 
300

12  300 
1 a   1.0256
1,800  1.05  0.003  300 

  1.0256  1  0.0256

b. Reduction in waiting time

 1,800  w  0.90   1.0256  1,846 w  1, 661.47
11   
300 300

1,846 w  3,300  1, 661.47

w  0.888 days

The reduction in waiting time is:

105 . 
.  0888
 1543%
.
105
.
Problem: 05

Gadjits and Widjits

a. Containers for gadjits
d ( w   )(1   )
k= c

800(3)( 0.09  0.06)(1  0.09)

k= 80 = 4.905

k=5

b. Containers for widjits

d ( w   )(1   )
k= c

800(2)(0.14  0.20)(1  0.08)

k= 50 = 11.750

k = 12
 PROBLEM: SUPPLY CHAIN MANAGEMENT / DESIGN (Chapter 9)

Problem- 01: (Excercise problem 5 page 346 krajewski):

Jack Jones, the materials manager at Precision Enterprises… is beginning to look for ways
to reduce inventories. A recent accounting statement shows the following inventory investment
by category: raw materials $3,129,500; work-in-process $6,237,000; and finished goods
$2,686,500. This year’s cost of goods sold will be about $32.5 million. Assuming 52 business
weeks per year, express total inventory as:

a) Weeks of supply

b) Inventory turns

Problem- 02: (Advanced problem 9 page 347 krajewski):

3. Sterling Inc. operates 52 weeks per year and its cost of goods sold last year was $
6,500,000. The firm carries eight items in inventory: four raw materials, two work-in-
process items and two finished goods. Following table shows last year’s average
inventory levels for these items along with their unit values.
a. What is the average aggregate inventory value?
b. How many weeks of supply does the firm have?
c. What was the inventory turnover last year?

Category Part Number Average Inventory (units) Value per unit

Raw materials RM-1 20,000 $1

RM-2 5,000 $5

RM-3 3,000 $6

RM-4 1,000 $8

Work-in-process WIP-1 6,000 $10

WIP-2 8,000 $12

Finished Goods FG-1 1,000 $65

FG-2 500 $88

Problem- 03: (Solved problem 2 page 345 krajewski):

A firms cost of goods sold last year was $3,410,000 and the firm operates 52 weeks per year. It
carries seven items in inventory: three raw materials, two work in process and two finished
goods. The following table contains last year’s average inventory level for each item, along with
its value.

a) What is the average aggregate inventory value?

b) How many weeks of supply does the firm maintain?

c) What was the inventory turnover last year?

Category Part Number Average Inventory (units) Value per unit

Raw materials RM-1 15,000 $3

RM-2 2,500 $5

RM-3 3,000 $1

Work-in-process WIP-1 5,000 $14

WIP-2 4,000 $18

Finished Goods FG-1 2,000 $48

FG-2 1,000 $62

Problem- 01: (Exercise problem 5 page 346 krajewski):

Precision Enterprises. Average aggregate inventory value

= Raw materials + WIP + Finished goods

= $3,129,500 + $6,237,000 +
$2,686,500

= $12,053,000

a. Sales per week = Cost of goods sold/52 weeks per year

= $32,500,000/52

= $625,000

Weeks of supply = Average aggregate inventory value/

Weekly sales

= $12,053,000/$625,000

= 19.28 wk

b. Inventory turnover = (Annual sales at cost)/(Average

aggregate inventory value)

= $32,500,000/$12,053,000

= 2.6964 turns/year
Problem- 02: (Advanced problem 9 page 347 krajewski):

Sterling Inc.
a. Average

Part Inventory (units) Value ($/unit) Total Value ($)

Number

RM-1 20,000 1.00 20,000

RM-2 5,000 5.00 25,000

RM-3 3,000 6.00 18,000

RM-4 1,000 8.00 8,000

WIP-1 6,000 10.00 60,000

WIP-2 8,000 12.00 96,000

FG-1 1,000 65.00 65,000

FG-2 500 88.00 44,000

Average aggregate inventory value: $336,000

b. Average weekly sales at cost = $6,500,000/52

= $125,000

Weeks of supply = $336,000/$125,000

= 2.688 weeks.

c. Inventory turnover = Annual sales (at cost) /Average aggregate

inventory value
= $6,500,000/$336,000

= 19.34 turns.
PROBLEM: RESOURCE PLANNING (CHAPTER 15)
Problem-01: Exercise Problem 1 page 568 Krajewski

Problem-02: Exercise Problem 2 page 568 Krajewski

Problem-03: Exercise Problem 3 page 568 Krajewski

Problem-04: Exercise Problem 16 page 572 Krajewski

Problem-05: Exercise Problem 17 page 572 Krajewski

Problem-06: Exercise Problem 20 page 574 Krajewski

Problem-01: Exercise Problem 1 page 568 Krajewski

Bill of materials, Fig. 15.24

a. Item I has only one parent (E). However, item E has two parents (B and
C).

b. Item A has 10 unique components (B, C, D, E, F, G, H, I, J, and K).

c. Item A has five purchased items (I, F, G, H, and K). These are the items without
components.
d. Item A has five intermediate items (B, C, D, E, and J). These items have both parents and
components.
e. The longest path is I–E–C–A at 11 weeks.

Problem-02: Exercise Problem 2 page 568 Krajewski

2. Item A. The bill of materials for item A is shown following.

B(2) C(2) D(2)

C(2) E(1) F(2)

Problem-03: Exercise Problem 3 page 568 Krajewski

3. Lead time is determined by the longest path, C–B–A, at 13 weeks.

Problem-04: Exercise Problem 16 page 572 Krajewski

Completed inventory records

a. FOQ of 50 units
Item: Drive shaft Lot Size: 50 units

Lead Time: 3 weeks

Week 1 2 3 4 5 6 7 8

Gross requirements 35 25 15 20 40 40 50 50

Scheduled receipts 80

Projected on hand10 55 30 15 45 5 15 15 15

Planned receipts 50 50 50 50

Planned order 50 50 50 50
releases

b. L4L

Item: Drive shaft Lot Size: L4L

Lead Time: 3 weeks

Week 1 2 3 4 5 6 7 8

Gross requirements 35 25 15 20 40 40 50 50

Scheduled receipts 80

Projected on hand10 55 30 15 0 0 0 0 0

Planned receipts 5 40 40 50 50

Planned order 5 40 40 50 50
releases
 c. POQ with P = 4

Item: Drive shaft Lot Size: POQ, P = 4

Lead Time: 3 weeks

Week 1 2 3 4 5 6 7 8

Gross requirements 35 25 15 20 40 40 50 50

Scheduled receipts 80

Projected on hand10 55 30 15 130 90 50 0 0

Planned receipts 135 50

Planned order 135 50

releases

Problem-05: Exercise Problem 17page 572 Krajewski

17. Rear wheel assembly, Fig. 15.33

a. Fixed order quantity = 300

Item: MQ—09 Lot Size: FOQ: 300

Description: Rear wheel Lead Time: 1 week

assembly

Week 1 2 3 4 5 6 7 8

Gross requirements 205 130 85 70 60 95

Scheduled receipts 300

Projected on hand 195 195 65 280 280 210 150 55

100

Planned receipts 300

Planned order 300

releases
b. Lot-for-lot

Item: MQ—09 Lot Size: L4L

Description: Rear wheel Lead Time: 1 week

assembly

Week 1 2 3 4 5 6 7 8

Gross requirements 205 130 85 70 60 95

Scheduled receipts 300

Projected on hand 195 195 65 0 0 0 0 0

100

Planned receipts 20 70 60 95

Planned order 20 70 60 95
releases

c. Period order quantity, P = 4

Item: MQ—09 Lot Size: POQ, P = 4

Description: Rear wheel Lead Time: 1 week

assembly

Week 1 2 3 4 5 6 7 8

Gross requirements 205 130 85 70 60 95

Scheduled receipts 300

Projected on hand 195 195 65 130 130 60 0 0

100

Planned receipts 150 95

Planned order 150 95

releases
Problem-06: Exercise Problem 20 page 574 Krajewski

MRP for Fig. 15.36

A B

C(2) D(1) D(1) E(2)

F(2) E(1) F(2) E(1) F(1)

F(1) F(1)

Data Category Item

C D E F

Lot-size rule FOQ = 220 L4L FOQ = 300 POQ (P = 2)

Lead time 3 weeks 2 weeks 3 weeks 2 weeks

Scheduled 280 (week None 300 (week None

receipts 1) 3)

On-hand 25 0 150 600

inventory

Item: C Lot Size: FOQ = 220

Description: Lead Time: 3 weeks

Week 1 2 3 4 5 6 7 8

Gross requirements 170 200

Scheduled receipts 280

Projected on hand 305 305 135 135 135 155 155 155
25

Planned receipts 220

Planned order 220
releases

Item: D Lot Size: L4L

Description: Lead Time: 2 weeks

Week 1 2 3 4 5 6 7 8

Gross requirements 85 180 100

Scheduled receipts

Projected on hand 0 0 0 0 0 0 0 0 0

Planned receipts 85 180 100

Planned order 85 180 100

releases

Item: E Lot Size: FOQ = 300

Description: Lead Time: 3 weeks

Week 1 2 3 4 5 6 7 8

Gross requirements 85 180 100 360

Scheduled receipts 300

Projected on hand 65 65 185 85 25 25 25 25

150

Planned receipts 300

Planned order 300

releases
Item: F Lot Size: POQ = 2

Description: Lead Time: 2 weeks

Week 1 2 3 4 5 6 7 8

Gross requirements 170 300 360 200

Scheduled receipts

Projected on hand 430 130 200 0 0 0 0 0

600

Planned receipts 430

Planned order 430

releases

Two notices are identified: order 85 units of D and 430 units of F. Please
note that action notices were not asked for in the problem.