INVENTORY MANAGEMENT – SEMESTER 01 – 2022-2023

HOMEWORK 5

Question 1:
Ceiling Drug is concerned about the inventory control of an important item. Currently, they are
using an (𝑠, 𝑄) system where 𝑄 is the EOQ and the safety factor 𝑘 is selected based on a 𝐵1
shortage-costing method. Relevant parameter values are estimated to be
𝐷 = 2,500 𝑢𝑛𝑖𝑡𝑠/𝑦𝑒𝑎𝑟 𝐵1 = $100
𝑣 = $10/𝑢𝑛𝑖𝑡 𝑥
̂𝐿 = 500 𝑢𝑛𝑖𝑡𝑠
𝐴 = $5 𝜎𝐿 = 100 𝑢𝑛𝑖𝑡𝑠
𝑟 = 0.25$/$/𝑦𝑒𝑎𝑟

Determine the simultaneous best values of 𝑄 and 𝑠.

Question 2:
A retail electronic-supply outlet is considering an (𝑠, 𝑆) control system for one of its products.
Relevant given characteristics of the product include
𝐷 = 2,000 𝑢𝑛𝑖𝑡𝑠/𝑦𝑒𝑎𝑟 𝐵1 = $200
𝑣 = $7.5/𝑢𝑛𝑖𝑡 𝑥
̂𝐿 = 250 𝑢𝑛𝑖𝑡𝑠
𝐴 = $10 𝜎𝐿 = 75 𝑢𝑛𝑖𝑡𝑠
𝑟 = 0.25$/$/𝑦𝑒𝑎𝑟

Find 𝑠 and 𝑆 of this inventory policy neglecting the undershoots.

Question 3:
Consider the same product in Question 2, the probability distribution of transaction sizes is as
follows

𝑡0 1 2 3 6 12 24 36 72
𝑝𝑡 (𝑡0 ) 0.15 0.05 0.05 0.3 0.15 0.05 0.1 0.15

Select 𝑠 and 𝑆 simultaneously using the undershoot distribution.

Note: For question 3, students will use Excel to solve the problem. After that, students only need
to write down some key results in their answer sheet. There is an example in the following page.

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INVENTORY MANAGEMENT – SEMESTER 01 – 2022-2023

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