Your firm uses a periodic review system for all SKUS classified, using ABC analysis, as B or C items. Further, it uses a continuous review system for all SKUS classified as A items. The demand for a specific SKU, currently classified as an A item, has been dropping. You have been asked to evaluate the impact of moving the item from continuous review to periodic review. Assume your firm operates 52 weeks per year; the item's current characteristics are: Demand (D) = 15,080 units/year Ordering cost (S) = $125.00/order Holding cost (H) = $3.00/unit/year Lead time (L) = 5 weeks Cycle service level = 95 percent Demand is normally distributed, with a standard deviation of weekly demand of 64 units. -Calculate the item's EOQ. - Use the EOQ to define the parameters of an appropriate continuous review and periodie review system for this item. -Which system requires more safety stock and by how much? -How do you think each system can affect your procurement procedures/methods?

Your firm uses a periodic review system for all SKUS classified, using ABC analysis, as B or C items. Further, it uses a continuous review system for all SKUS classified as A items. The demand for a specific SKU, currently classified as an A item, has been dropping. You have been asked to evaluate the impact of moving the item from continuous review to periodic review. Assume your firm operates 52 weeks per year; the item's current characteristics are: Demand (D) = 15,080 units/year Ordering cost (S) = $125.00/order Holding cost (H) = $3.00/unit/year Lead time (L) = 5 weeks Cycle service level = 95 percent Demand is normally distributed, with a standard deviation of weekly demand of 64 units. -Calculate the item's EOQ. - Use the EOQ to define the parameters of an appropriate continuous review and periodie review system for this item. -Which system requires more safety stock and by how much? -How do you think each system can affect your procurement procedures/methods?

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

ChapterC: Cases

Section: Chapter Questions

Problem 5.1SC: Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing...

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Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?
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