Narragansett Yacht

Topics: Inventory, Reorder point, Safety stock Pages: 2 (483 words) Published: November 21, 2011
1. What is the economic ordering quantity for standard 5-inch winches if they are ordered

from (a) Supplier A, and (b) Supplier B? Round your answers up to the next whole unit, because Narragansett cannot order a fraction of a winch.
What assumptions are implied in the EOQ model? Do these assumptions appear reasonable when applied to Narragansett Yacht?
How many orders should be placed each year if Narragansett buys from Supplier A? If the firm buys from Supplier B? What is the reorder point (in units) for each supplier? Assume for now that no safety stocks are held and use a 360-day year. Calculate the total inventory cost (the cost of ordering plus the cost of carrying inventories) that Narragansett would incur from each supplier. On the basis of the information developed thus far, which supplier should Narragansett use? Narragansett currently carries a safety stock of 75 winches to protect itself against stockouts due to delivery delays and/or an increase in its usage rate. However, if it decides to switch to Supplier B, Narragansett would need to increase the safety stock to 150 units to reflect Supplier B’s longer lead time.

a. Assuming that the desired safety stock is currently on hand, what is the total cost of ordering and carrying inventories, including the safety stock, using Supplier A? What is the cost of using Supplier B?

b. How does the introduction of safety stocks affect the reorder points as calculated in Question 3?
c. Assume that there is a shipping delay. How many days after an order is placed could Narragansett continue to operate, at its expected usage rate, before its entire stock of 5-inch winches is reduced to zero? Compute this figure for both Supplier A and Supplier B.

Narragansett’s production is relatively constant throughout the year, but if its sales and production were highly seasonal, could the EOQ model still be used? If so, would modifications be required? Explain.

Suppose Supplier A, the current supplier, offers a 2...
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