Self-Study Assignment Refer to the textbook: 1. Inventory (Chapter 13) a) Solved problem #1 b) Solved problem #3 ©) Solved problem #5 d) Solved problem #6 Aggregate planning (Chapter 14) a) Solved problem #1 3. Resource planning (Chapter 15) a) Solved problem #1 b) Solved problem #2 4. MPS (Supplement G) a) Solved problem (page 790)Inventory Management Self-Study Assignment 1. George uses 1,500 per year of a certain subassembly that has an annual holding cost of $45 per unit. Each order placed costs George $150. He operates 300 days per year and has found that an order must be placed with his supplier 6 working days before he can expect to receive that order. For this subassembly, find e) Economic order quantity (EOO) 4) Annual holding cost g) Annual ordering cost h) Reorder point (R) Stephanie is attempting to perform an inventory analysis on one of her most popular products. Annual demand for this product is 5,000 units; carrying cost is $50 per unit per year; order costs for her company typically run nearly $30 per order; and lead time average 10 days. (Assume 250 working days per year.) b) What is EOQ? ©) What is the average inventory? 4) What is the optimal number of orders per year? ©) What is the optimal number of working days between orders? £) What is the total annual inventory cost (carrying cost + ordering cost)? 2) What is the reorder point (R)? 3. Based on available information, lead time demand for CD-ROM drives averages 50 units (normally distributed), with a standard deviation of 5 drives. Management wants a 97% service level. ©) What value of Z should be applied? d) How many drives should be carried as safety stock? e) What is the appropriate reorder point (R)?4. An ophthalmologist’s office operates 52 weeks per year, 6 days per week and uses a continuous review inventory system. It purchases disposable contact lenses for $11.70 per pair. The following information is available about these lenses. Demand = 90 pairs/week Order cost = $54/order Annual holding cost = 27% of cost Desired cycle-service level = 80% Lead time = 3 weeks (18 working days) Standard deviation of weekly demand = 15 pairs Current on-hand inventory is 320 pairs, with no open orders or backorders, a) What is OQ? What should be the average tune between orders (in weeks)? b) What should & be? ©) An inventory withdrawal of 10 pairs was just made. Is it time to reorder? d) The store currently uses a lot size of 500 units (i.e, @ = 500). What is the annual holding cost of this policy? Annual ordering cost? Without calculating the ZOQ, how can you conclude from these two calculations that the current lot size is too large? €) What would be the annual cost saved by shifting from the 500-unit lot size to the FOO? ‘Suppose that the ophthalmologist’s office in Problem 4 uses a P system instead of a Q system. The average daily demand is 15 pairs (90/6), and the standard deviation of daily demand is 6.124 pairs (15/6). a) What P (in working days) and T should be used to approximate the cost trade-off of the LOO? b) How much more safety stock is needed than with a Q system? ©) It’s time for the periodic review. How much should be ordered? (current on-hand inventory is 320 pairs, and a withdrawal of 10 pairs was just made) 6. Weiss’s paint store uses an (s, S) inventory system to control its stock levels. For a particularly popular white latex paint, historical data show that the distribution of 4 weeks’ demand is approximately normal, with mean 28 and standard deviation 8. Replenishment lead time for this paint is about 14 weeks. Each can of paint costs the store $6. Fixed costs of replenishment are $15 per order, and holding costs are based on a 30 percent annual rate of cost. a) Determine appropriate values of (s, $). Assume a 95% service level.Solutions for Inventory Management: (a) Economie Order Quantity: aps _ [2=1500% = Jae = JRO = 100 units # 45 where: D = period demand, S = setup or order cost, H/= holding cost = (6) angus = 2H = 18025 5500 (ert «B81 sas (6) Reorder point: unite/day » 6 day: (a) Economie Order Quantity: SDs OVE where: D = period demand, 7746 or 78 units [25000 x30 50 setup or order cost, /= holding cost (Avene ives -2839 wi Demand _ 5000 (e) Number of orders per year =641 of 64 orders £0Q 78 (@) Assuming 250 business days per year, the optimal number of business days between orders is given by Optimal number of days (©) Total cost = order cost + holding cost DS OH _5,000%30 | 78%50 @2 8 2 =1,92302+1, 3,873.08, Note: Order and carrying costs are not equal due to rounding of the ZOQ to a whole number. If an £OQ of 77.46 is used, the order and carrying costs calculate to $1,936.49 for a total cost of $3,872.98, (Reorder point: S000 wails 5-10 days =200 units 250 days This is not to say that we reorder when there are 200 units on hand (as there never are) ‘The ROP indicates that orders are placed several cycles prior to their actual demand,(a) Z=188 (b) Safety Stock = Ze=188(5)=94 drives (e) ROP =50+94=59.4 drives (a) Economie order quantity = 90/ week D= 4.680 s=554 Price = $11.70 H=27%(S11.70) = $3.159 ee pps _ [xacsoysa 209 = [228 = [PANES _ e000 = sop HV 3159 ‘Time between orders, in weeks. 2 400 = = 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 70 pairs Safety stock ‘When the desired cycle-service level is 80%, z= 0.84. oN =15V3 =26 Safety stock = 0.84 R=240+22=292 oo 26 = 21.82 or about 22 pairs (©) Initial Inventory Position = OH + SR- BO = 320+ 0-0 321+ 10= 310. Since inventory position remains above 292, itis not yet time to place an order. @ Annual holding cost Annual ordering eost O,, 500) SH = 27%NS11.70) $789.75 At the EOQ, these two costs are equal. When = $00, the annual holding cost is larger than the $505.44 ‘ordering cost, therefore Q is too large, Total costs are $789.75 + $505.44 = $1,295.19e) Annual holding east Annual ordeting cost 2 yp 24 (970% Pg A680 554 5H = 270NSI1.70) 3° x00 = $631.80 = $631.80 Total costs at FOQ: = $1,263.60, which is $31.59 less than when order quantity is 500 pairs. COphthalmologist’s office with a P system (a) Referring to Review Problem 4, the £OQ is 400 pairs. When the demand rate is 15 per day, the average time between order is (400/15) 26.67 or about 27 days. The lead time is 3 weeks x 6 days per week = 18 days. Ifthe review period is set equal to the £OQ's average time between orders (27 days), then the protection interval (P +L) = (27+ 18)=45 days. For an 80% eyele-service level op, = 6.12445 = 41.08 Safety stock ez = 0.84(41.08) = 34.51 0F 35 pairs T= Average demand during the protection interval + Safety stock T= (15%45) +35=710 (b) In problem 4, the @ system required a safety stock of 22 pairs to achieve an 80% cycle-service level. Therefore, the P system requires a safety stock which is larger by (35 — 22) 13 pairs (©) From Review Problem 4, inventory position, JP = 310. The amount to reorder is T- IP = $10 - 310 = 400. 6. (a) Let's ignore the unfilled demand cost and assume the service level be 95%. Therefore, D=28X 52/4=364, W=-0.3X6=1.8 roo, [225 — PS6EIS h 18 7+123 = 200