Exam 11: Managing Inventory Throughout the Supply Chain

Which of these conditions is likely to cause a decrease in the probability of a stockout?

Central Perk orders their organic coffee filters from a South American supplier that mails them as inexpensively (hence,as slowly)as possible.Central Perk uses 80 filters a day with a standard deviation of 5 days.It would be disastrous if they ran out of these filters,years ago customers caught them using paper towels from the men's room and business suffered.They have set their service level at 99% in hopes of avoiding a similar situation.It takes a fortnight to receive a shipment and the standard deviation of the shipping time is two days.What is their reorder point?

A local barbecue joint makes one massive batch of potato salad each day.If they run out of this savory side before the end of the day,their last few customers are less than satisfied,but if they make too much,they sell it to the local hog farmer for feed.Every serving costs an equivalent of $0.23 to make,but can be sold for $1.50 to customers and for $0.08 to the hog farmer.The average daily demand is for 200 servings with a standard deviation of 20 servings.How many servings should be made each day?

Three Chums Fish Company buys fresh salmon daily from the fishermen that ply the deep waters of Puget Sound.Salmon are purchased for $2.50 per pound and sold to the public at $8.50 per pound.The salmon are kept fresh by displaying them on ice but at the end of the day,any unsold fish have a noticeable odor and are sold to a nearby chowder stand for $1 per pound.The past year's demand for salmon on Saturdays is shown in the table.Based on this information,what should their target service level and stocking point be? What is the significance of the target stocking level?

Gordon went to the grocery store and bought a bag of carrots.He needed only three for his cottage pie recipe,but they came twelve to a bag so he diced three and tossed the rest in the crisper compartment of his stainless steel refrigerator.As he screamed his insults at his children they reminded themselves that he wasn't upset with them,rather he was concerned about the high level of ________ stock he was holding.

A target service level is the point where the expected cost of a shortage equals the expected cost of having excess units.

The inventory that companies hold to protect themselves against uncertainties in either demand or replenishment time is called:

A haberdashery orders cravats from manufacturers overseas to satisfy their demand rate of 5,000 units per year that has been stable for the past decade.Placing an order costs 15 euro and holding each cravat in inventory for a year costs 2 euro.The manufacturer offers price breaks for large orders: ordering between 1 and 99 cravats earns the haberdashery a price of 3.5 euro,but ordering 100 to 999 carries a 3.4 euro price.An order of 1000 cravats or more drops the price to 3.3 euro.What's the optimal order quantity for the haberdashery?

In a single period inventory system,as the average demand rises,the standard deviation of demand falls.

Degan routinely drove the 400-mile round trip to his favorite grocery store to stock up on bread,which cost $1.50 per loaf.Running out would be disastrous - an unplanned trip to this store would mean a custom order that would run $7.75 per loaf.Overstocking wasn't a big issue,he could sell it to his teaching partner for $0.10 per loaf.With a demand that is normally distributed with a mean of 125 and standard deviation of 15,what is Degan's optimal purchase quantity on his next trip to the store?

Safety stock increases when:

Supply chain inventory:

A law firm always orders 50 cases of paper from their office supply company.They incur an annual holding cost of $15 per case and have an ordering cost of $25 each time they place an order.If their annual demand is 480 cases,how much could they save annually by switching to their economic order quantity?

The order quantity in a periodic review system rises as the on-hand inventory falls.

If annual demand increases by 100%,the average inventory held in a system governed by the EOQ model is:

Individual links in the supply chain can stabilize their production at the most efficient level by using:

Warren hesitated as he read the fast food menu,unsure whether he should supersize the orders of delicious golden French fries.As the office lunch boy,he was responsible for buying enough food to keep his coworkers satiated during the rest of the work day.Supersizing would increase his cost from $0.99 to $1.59 and just might provide his colleagues the nutrition they needed to make it through the second half of his day at the office.Of course,if they finished his hamburger and the usual amount of fries,Warren would simply throw the extra ones away.However,if he failed to supersize the orders,he would have to purchase candy bars during the afternoon and they weren't exactly giving them away in the break room vending machines.Each hungry colleague would likely need two candy bars,which sold for $1.25 each.With a demand that is normally distributed with a mean of 15 and standard deviation of five,what is Warren's optimal supersize decision?

A local barbecue joint makes one massive batch of potato salad each day.If they run out of this savory side before the end of the day,their last few customers are less than satisfied,but if they make too much,they sell it to the local hog farmer for feed.Every serving costs an equivalent of $0.23 to make,but can be sold for $2.50 to customers and for $0.12 to the hog farmer.The average daily demand is for 400 servings with a standard deviation of 40 servings.How many servings should be made each day? One day the hog farmer cancels the contract - evidently there are some things that even hogs won't eat.With no fallback position,how many servings of potato salad should the barbecue joint make? Discuss the discrepancy between the two numbers.

The restocking level increases as the service level falls.

Decreases in the standard deviation of demand reduce the amount of safety stock that should be held.