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York Motor service station is now selling bottles of high-quality windshield washer fluid motorists who are driving luxury cars. It is open 5 days per week, 260 days per year. Sales of the windshield washer fluid average 20 bottles per day. Inventory holding costs are $0.50 per average unit per year. Fixed ordering costs are $15 per order. Purchasing costs are $8 per average unit. Reorder lead time is 10 working days. Backorders are not practical as the motorists will drive away to the next station to buy their windshield washer fluid. local a) Based on this data and assuming that daily demand is constant and uniform over time, calculate the economic order quantity and the reorder point. The manager is concerned about using the EOQ model because the demand is not constant but varies from day to day. From analysis of sample data, it is determined that the demand follows a normal distribution with a mean of 20 per day and a standard deviation of 8.75 bottles per day. b) The service station would like to use a continuous review policy (Fixed-Order Quantity Model with Safety Stock), and the manager wants to use the order quantity you found in part (a) but wants to have a 93.7% service level (or probability of not stocking out). What should be the safety stock and reorder point to achieve the desired service level? c) Calculate the number of inventories turns arising from use of the Fixed-Order Quantity Model with safety stock in part (b).

York Motor service station is now selling bottles of high-quality windshield washer fluid motorists who are driving luxury cars. It is open 5 days per week, 260 days per year. Sales of the windshield washer fluid average 20 bottles per day. Inventory holding costs are $0.50 per average unit per year. Fixed ordering costs are $15 per order. Purchasing costs are $8 per average unit. Reorder lead time is 10 working days. Backorders are not practical as the motorists will drive away to the next station to buy their windshield washer fluid. local a) Based on this data and assuming that daily demand is constant and uniform over time, calculate the economic order quantity and the reorder point. The manager is concerned about using the EOQ model because the demand is not constant but varies from day to day. From analysis of sample data, it is determined that the demand follows a normal distribution with a mean of 20 per day and a standard deviation of 8.75 bottles per day. b) The service station would like to use a continuous review policy (Fixed-Order Quantity Model with Safety Stock), and the manager wants to use the order quantity you found in part (a) but wants to have a 93.7% service level (or probability of not stocking out). What should be the safety stock and reorder point to achieve the desired service level? c) Calculate the number of inventories turns arising from use of the Fixed-Order Quantity Model with safety stock in part (b).

Purchasing and Supply Chain Management
Purchasing and Supply Chain Management
6th Edition
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Chapter16: Lean Supply Chain Management
Section: Chapter Questions
Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...
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York Motor service station is now selling bottles of high-quality windshield washer fluid to local motorists who are driving luxury cars. It is open 5 days per week, 260 days per year. Sales of the windshield washer fluid average 20 bottles per day. Inventory holding costs are $0.50 per average unit per year. Fixed ordering costs are $15 per order. Purchasing costs are $8 per average unit. Reorder lead time is 10 working days. Backorders are not practical as the motorists will drive away to the next station to buy their windshield washer fluid. a) Based on this data and assuming that daily demand is constant and uniform over time, calculate the economic order quantity and the reorder point. The manager is concerned about using the EOQ model because the demand is not constant but varies from day to day. From analysis of sample data, it is determined that the demand follows a normal distribution with a mean of 20 per day and a standard deviation of 8.75 bottles per day. b) The service station would like to use a continuous review policy (Fixed-Order Quantity Model with Safety Stock), and the manager wants to use the order quantity you found in part (a) but wants to have a 93.7% service level (or probability of not stocking out). What should be the safety stock and reorder point to achieve the desired service level? c) Calculate the number of inventories turns arising from use of the Fixed-Order Quantity Model with safety stock in part (b). d) Now, let us assume that the Motor service station does not have a continuous review system for their inventory. Instead, the manager reviews the inventory every 35 working days and places an order according to the inventory level at that point. Suppose that the manager is willing to accept no more than a 1.5 percent risk of stocking out during the lead time. d-1) What value of z should be applied to achieve the desired service level? How much safety stock would the service station have to carry? d-2) If the service station has 50 bottles in inventory at the time of review, what should the order quantity be under the current model?
Transcribed Image Text:York Motor service station is now selling bottles of high-quality windshield washer fluid to local motorists who are driving luxury cars. It is open 5 days per week, 260 days per year. Sales of the windshield washer fluid average 20 bottles per day. Inventory holding costs are $0.50 per average unit per year. Fixed ordering costs are $15 per order. Purchasing costs are $8 per average unit. Reorder lead time is 10 working days. Backorders are not practical as the motorists will drive away to the next station to buy their windshield washer fluid. a) Based on this data and assuming that daily demand is constant and uniform over time, calculate the economic order quantity and the reorder point. The manager is concerned about using the EOQ model because the demand is not constant but varies from day to day. From analysis of sample data, it is determined that the demand follows a normal distribution with a mean of 20 per day and a standard deviation of 8.75 bottles per day. b) The service station would like to use a continuous review policy (Fixed-Order Quantity Model with Safety Stock), and the manager wants to use the order quantity you found in part (a) but wants to have a 93.7% service level (or probability of not stocking out). What should be the safety stock and reorder point to achieve the desired service level? c) Calculate the number of inventories turns arising from use of the Fixed-Order Quantity Model with safety stock in part (b). d) Now, let us assume that the Motor service station does not have a continuous review system for their inventory. Instead, the manager reviews the inventory every 35 working days and places an order according to the inventory level at that point. Suppose that the manager is willing to accept no more than a 1.5 percent risk of stocking out during the lead time. d-1) What value of z should be applied to achieve the desired service level? How much safety stock would the service station have to carry? d-2) If the service station has 50 bottles in inventory at the time of review, what should the order quantity be under the current model?
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