Exam 11: Managing Inventory Throughout the Supply Chain

A manufacturer replenishes their packaging materials according to the economic order quantity model. They use 25,000 cases of packaging materials per year and order 500 cases at a time. Their cost to carry a case in inventory for a year is $12. How much does it cost them to place an order with their supplier?

The bullwhip effect says that a small change in demand downstream in the supply chain causes a large change in demand upstream.

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? Daily Demand (pounds) \# Days at This Level 300 3 320 4 340 6 360 9 380 9 400 8 420 6 440 5 460 2

In order to find the lowest cost ordering policy in a quantity discount model, you always compute the EOQ and confirm whether this amount can be purchased for the lowest cost.

The beef jerky driver shows up every Monday to take orders from his convenience store customers. One fine Monday morning he stops in the Quik-E Mart and notes that there are only three sticks on the shelves. Consulting his route sheet, he discovers that the restocking level is 40. The order quantity is therefore:

The cashier waved the can of golden hominy across the holographic bar code reader and it emitted a piercing beep. At the same time the customer's bill was rising, the grocery store's inventory was automatically being reduced by 1 can of golden hominy down to 3 cans. This was the bare minimum amount of hominy the store manager dared carry in inventory, so the computer system automatically sent a message to the hominy man, who loaded a few cases onto his delivery truck for tomorrow morning's trip to replenish the store. This is a classic example of:

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 (14 days)to receive a shipment and the standard deviation of the shipping time is two days. What is their reorder point?

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

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?

Geoff hesitated as he read the fast food menu, unsure whether he should supersize his order of delicious golden French fries. Doing so would increase his cost from $0.99 to $1.59 and just might provide him the nutrition he needed to make it through the second half of his day at the office. Of course, if he finished his hamburger and the usual amount of fries, he would simply throw the extra ones away. However, if he failed to supersize his order, he would have to take a candy bar break mid-afternoon and they weren't exactly giving them away in the break room vending machines. He would likely need two candy bars, which sold for $0.95 each. What is Geoff's target service level?

Discuss the advantages of holding inventory far upstream or downstream in the supply chain.

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?

A recently-divorced father checks the level of Boil and Serve macaroni and cheese in his pantry the last day of every month. He uses an average of 20 boxes per month (his reorder lead time)with a standard deviation of 5 boxes and wants to avoid the embarrassment and deprivation of a stockout 99% of the time. Lead time is essentially zero since he can pick up a box on the way home from work each day. What should his restocking level be?

Define the bullwhip effect. What can supply chain members do to mitigate its effects?

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

The ________ is an extreme change in the supply position upstream generated by a small change in demand downstream.

Cycle stock can occur at more than one point in a supply chain.

Inventory that is "in the pipeline" moving from one link in the supply chain to another is: