Supply Chain Management Tutorial3

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1. Safety inventory is inventory carried for the purpose of satisfying demand that exceeds the amount forecasted for a given period. Safety inventory is carried because demand forecasts are uncertain and a product shortage may result if actual demand exceeds the forecast demand. 2. Lead times serve to magnify the increase in variability due to demand forecasting. Therefore, lead time reduction can significantly reduce the bullwhip effect throughout a supply chain. Lead times typically include two components: order lead times, information lead times. Order lead times can be reduced through the use of cross-docking, but information lead time can be reduced through the use of electronic data interchange. Inventory levels are determined by both demand and lead time. As processing times are reduced, inventory levels and order quantities can also be reduced. 3. 1) Order fill rates

Pros: Company could make more profit from selling multi products. Cons: All products must be in stock for an order to be filled. 2) Cycle service level
Pros: Company could determine the percentage of satisfied customer s and lost customers and improve the service level from there. Cons: Lost customers will not come back again.
4. Uncertainty on safety inventory of supply will increase in safety stocks and the reorder point. 5. Solution: Average demand per week D=300
Standard deviation a weekly demand D=200
Lead time=2weeks CSL=95% Z=1.645(from Z table) Safety stock, SS=Z * D *√L=1.645*200*√2=465.3
So Best Buy should carry 464 safety inventory of cellphone. Their ROP should be 1065. 6. Solution: Order quantity=500
Average demand per week=300
Standard deviation of weekly demand, D =200
Lead time=2 weeks Product fill rate, fr=99% L = √L*D =√2*200=282.8
Fill rate, fr = 1 (L /Q)*P(z)
So 0.99=1-(200/500*P(z)) P(z)=0.0176 Z=1.96(from Z...
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