Exam 9: Supply Chain Inventory Management

A store has collected the following information on one of its products: Demand = 5,000 units/year Ordering costs = $12/order Holding costs = $4/unit/year Lead-time = 5 days weeks Unit cost = $748/unit Number of weeks per year = 50 weeks a.The firm currently orders 500 units per order.What is the total cost of ordering and holding these goods under this system? b.Determine their economic order quantity and cost of ordering and holding goods using the EOQ. c.Form the ratio of the order quantities under the old policy and EOQ.Form the ratio of the EOQ to the old order quantity.Then form the ratio of their total system costs under the two ordering policies.Average these two ratios and compare this number with the ratio of the old total cost with the total cost under an EOQ policy. d.How do they compare?

Scenario 9.1 The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year. -Use the information in Scenario 9.1.What are the total annual holding and ordering costs if Talbot orders using the EOQ quantity?

________ is the degree to which the same work can be done again and again.

Setup cost is independent of order size.

Which of the following generates pressure to decrease inventories?

________ are orders that have been placed but not yet received.

Which one of the following statements concerning a continuous review system is best?

One component of the holding cost of inventory is interest.

Scenario 9.4 Consider the following data for an independent-demand item maintained by Vicki Crittenden,the proprietor of a local auto repair shop: Weekly demand = 50 units Ordering cost = $8/order Holding cost = $4/unit/year Weeks in a year = 50 -Use the information in Scenario 9.4.Due to new ordering procedures initiated by Crittenden,the ordering cost is dropping to $4 per order.At the same time,the weekly demand increases to 64 units per week due to an increase in business.What effect do these changes have on the EOQ quantity for this item?

The primary lever to reduce anticipation inventory is to place orders closer to the time when they must be received.

Scenario 9.11 The Hastings Company is a nation-wide wholesaler for small electronic devices.One of its most popular items is a calculator,the "Whizz-Bang 1100".Hastings's demand,lead time and cycle service requirements for the W-B 1100 are as follows: Demand = 25,000 units/year Number of weeks per year = 50 weeks Standard deviation of weekly demand = 100 units Average lead time = 6 weeks Standard deviation of lead time: 2 weeks Cycle-service level = 85% Hastings uses a continuous review system to control inventory. A normal distribution table is appended to this exam. -Use the information in Scenario 9.11.If Hastings decides to increase its cycle-service level to 90%,what is the new reorder point if all other parameters remain the same for the Whizz-Bang 1100?

Scenario 9.3 Tom Bergman,owner and operator of the Earplug Superstore,is reviewing the costs associated with the store's best-selling hearing aid,the BZ15.The data available to Mr.Bergman concerning this device follow. Demand = 25 units/week Order cost = $3/order Holding cos = $1.50/unit/year The Earplug Superstore operates 52 weeks a year. -Use the information in Scenario 9.3.Tom cuts the ordering cost in half by implementing a streamlined processing system.How many fewer units should he now order each time he places an order?

Jimmy's Egg is a specialty restaurant featuring 47 different kinds of omelettes in three different sizes.They use 60 dozen eggs a day that they order from an egg factory with a lead time of five days.One fine day they stock their chiller and note that there are only 25 dozen eggs remaining.They have a backorder of 15 cases and an open order of 200 cases.What is their inventory position? Should they place an order?

What is ABC analysis and how does it work?

Use the following to answer the questions below. Shipments of Product X from a plant to a wholesaler are made in lots of 600.The wholesaler's average demand for X is 100 units per week.Lead time from plant to wholesaler is 4 weeks.The wholesaler pays for the shipments when they leave the plant. -Refer to the instruction above.What is the total of the wholesaler's current cycle plus pipeline inventories?

The two-bin inventory system is a type of visual system.

A company governed by an EOQ system decides to move in a more lean direction and hopes to reduce their Q as much as possible.What specific steps might be taken to help them in their journey towards a Q = 1?

An assistant manager is reviewing the costs associated with one of the store's better-selling products.The data available follows. Demand = 400 units/year Order cost = $25/order Holding cost = 50¢/unit/year a.They currently order a one-year supply.What are the total annual ordering cost and holding cost for this order size? b.What would be the EOQ and its associated ordering and holding costs?

As the service level increases,the probability of not running out of stock during a cycle decreases.

Your firm uses a continuous review system (Q system),in which the inventory position is updated after every transaction.The firm operates 52 weeks per year.One of the items has the following characteristics: Demand = 14,560 units per year Ordering cost = $40 per order Holding cost = $6 per unit per year Lead-time = 2 weeks Standard deviation in weekly demand = 100 units Cycle-service level = 80% If Q is made equal to the EOQ,what are the desired values for Q and R?