Operation Management

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II
S tandard d eviation
o f weekly d emand
SKU service level

WC219

$0.15

13,000

WC008

1.20

22,500

WC916

3.25

400

WC887

0.41

6;200

WC397

4.65

12,300

WC654

2.10

350

WC007

0.90

225

WC419

0.45

6,500

WC971

7.50

2,950

WC713

1 200

1,500

9 0 p ercent

C urrent o n-hand
inventory

3 5 calculators

Scheduled receipts

2 0 c alculators

Backorders

Exhibit 12.13 ABC D ata f or Problem 3

3.75 calculators

2 calculators

a. What is t he Economic O rder Q uantity?
b. What is the t otal a nnual o rder a nd i nventoryholding costs for the EOQ? c. What is t he reorder p oint w ithout s afety stock?
d. Whatis the reorder point with safety stock?
e. Based o n t he previous information, s hould a fixed
o rder q uantity be placed, a nd i f so, for h ow m any
c alcula to rs ?
7. Crew Soccer Shoes Company is considering a change o f
their current inventory control system for soccer shoes.
The information regarding t he shoes isgiven below.
Average demand = 2 00 p airs/week
Lead t ime = 3 w eeks
O rder c ost = $ 65/order

4. MamaMia's Pizza purchases its pizza delivery boxes
f rom a p rinting supplier. M amaMia's delivers on­
average 2 00 pizzas each m onth (assume deterministic
demand). Boxes cost 2 0 cents each, a nd e ach o rder
c osts $ 10 t o process. Because o f limited storage
space, the manager w ants t o c harge inventory hold­
ingat 3 0 p ercent o f the cost. The lead time is 7 days,
a nd t he restaurant is open 3 60 days per year, assum­
ing 3 0 days per m onth. D etermine the economic or­
der quantity, reorder p oint a ssuming no safety stock,
nurnber o f o rders per year, a nd t otal annual cost.
5. Refer to the situation in Problem 4. Suppose the
manager o f M amaMia's c urrent o rder q uantity is
2 00 boxes. H ow m uch c an be saved by a dopting a n
E OQ versus their c urrent Q = 2 00?
6. H igh Tech, Inc. is a v irtual s tore t hat s tocks a variety o f c alculators in t heir warehouse. C ustomer orde.rs
are placed, the o rder is p icked and packaged, and
then shipped to the customer. A fixed o rder q uantity
inventory control system (FQS) helps m onitor a nd
control these SKUs. The fonowing i nformation is for
one o f the calculators t hat t hey stock, sell, and ship.
Average d emand

1 2.5 c alculators p er w eek

Lead time

3 weeks

O rder c ost

$ 20/order

H olding c ost

$ 1.20/calculator/year

N umber o f w eeks

5 2 weeks per year

252

O M3

P art 3 ; M anaging O perations

H olding c ost = $ 4.00/pairiyr
D esired service level = 9 5 p ercent
S tandard d eviation o f weekly d emand

=

50

N umber o f weeks p er y ear"" 5 2
T he c ompany decides to use a fixed o rder q uantity
system. W hat is t he economic o rder q uantity? W hat
s hould be the reorder p oint t o have a 95. p ercent
service level? Explain h ow t he system will operate,
8. Tune Football Helmets C ompany is c onsidering
changing its c urrent i nventory c ontrol system for
football helmets. The information regarding the
helmets is given below.
D emand

=

Lead time

2 00 units/week
=

2 weeks

O rder c ost = $ 60/order
H olding c ost = $ 1.50/unit/yr
Desired service level

=

9 5 percent

Standard deviation o f w eekly d emand
N umber 6 f weeks p er y ear

=

=

40

52

C ompute T a nd M for a fixed p eriod i nventory
system model with and w ithout safety stock.
Explain h ow t his s ystem w ould o perate.
9. Suppose t hat a n industrial chemical costs $5/lb, an­
nual d emand is 1 ,200 Ib, the o rder c ost f rom t he su p­ plier is $ 40, inventory-holding cost ra te is 1 8 percent,

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