Overview
production INVENTORY MANAGEMEN questions
Question 1:
The new office supply discounter, Joe Henry’s shop, sells a certain type of ergonomically.
correct office chair which costs $350. The annual holding cost rate is 35%, annual demand is 750, and the order cost is $25 per order. The lead time is 5 days. Because demand is variable (standard deviation of daily demand is 2.4 chairs), Joe Henry’s shop has decided to establish a customer service level of 90%. The store is open 250 days per year.
a. What is the optimal order quantity?
b. What is the safety stock?
c. What is the reorder point?
Boreki Enterprises has the following 10 items in inventory. Theodore Boreki asks you, a recent OM graduate, to divide these items into ABC classifications.
Boreki Enterprises has the following 10 items in inventory. Theodore Boreki asks you, a recent OM graduate, to divide these items into ABC classifications.
Indicate the items which will be classified in each category and find the percentage of value for each classification.
Question 3:
A product has a reorder point of 110 units and is ordered four times a year. The following table
shows the historical distribution of demand values observed during the reorder period.
Demand Probability
100 0.3
110 0.4
120 0.2
130 0.1
Managers have noted that stockouts occur 30 percent of the time with this policy, and question.
whether a change in inventory policy, to include some safety stock, might be an improvement. The managers realize that any safety stock would increase the service level but are worried about the increased costs of carrying the safety stock. Currently, stockouts are valued at $25 per unit per occurrence, while inventory carrying costs are $15 per unit per year. What is your advice? Do higher levels of safety stock add to total costs, or not? What level of safety stock is best?Question 3:
A product has a reorder point of 110 units and is ordered four times a year. The following table
shows the historical distribution of demand values observed during the reorder period.
| Demand | Probability |
| 100 | 0.3 |
| 110 | 0.4 |
| 120 | 0.2 |
| 130 | 0.1 |
Managers have noted that stockouts occur 30 percent of the time with this policy, and question.
whether a change in inventory policy, to include some safety stock, might be an improvement. The managers realize that any safety stock would increase the service level but are worried about the increased costs of carrying the safety stock. Currently, stockouts are valued at $25 per unit per occurrence, while inventory carrying costs are $15 per unit per year. What is your advice? Do higher levels of safety stock add to total costs, or not? What level of safety stock is best?