OPERATION MANAGEMENT
2nd Edition
ISBN: 9781260242423
Author: CACHON
Publisher: MCG
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Chapter 10, Problem 9CQ
Summary Introduction
To determine: The correct option.
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What policy results in stockouts 10% of the time?
Question 1
For supply item ABC, Andrews Company has been ordering 400 units per week. A new
purchasing agent has been hired by the company who wants to start using the economic-order-
quantity method and its supporting decision elements. She has gathered the following
information:
Annual demand in units
Lead time, in days
Ordering costs
Insurance and handling costs
Purchase price per unit
Return on cash investment
20,800
5
$22
$7
$15
15%
Required
Your company has the following items in inventory:
Unit Cost
$9
$90
$6
Item
A
B
с
D
E
F
G
H
Annual Demand
1200
100
4500
400
35
250
1000
100
$150
$2000
$120
$90
$75
a) What is the annual dollar volume for all items
b) Perform an ABC analysis on the data. Which are the A items, the B items and the C
item:
c) Why is it desirable to classify items into groups, as the ABC classification scheme does?
d) Define and discuss the term "productivity" with help of productivity equation.
Chapter 10 Solutions
OPERATION MANAGEMENT
Ch. 10 - It is costly to hold inventory, but inventory can...Ch. 10 - A delivery truck from a food wholesaler has just...Ch. 10 - Prob. 3CQCh. 10 - Prob. 4CQCh. 10 - Prob. 5CQCh. 10 - Prob. 6CQCh. 10 - Prob. 7CQCh. 10 - Prob. 8CQCh. 10 - Prob. 9CQCh. 10 - Prob. 10CQ
Ch. 10 - Prob. 11CQCh. 10 - Prob. 12CQCh. 10 - Prob. 13CQCh. 10 - Prob. 14CQCh. 10 - Prob. 1PACh. 10 - Prob. 2PACh. 10 - Prob. 3PACh. 10 - An electronics manufacturer has 25 days-of-supply...Ch. 10 - Prob. 5PACh. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - Prob. 9PACh. 10 - Prob. 10PACh. 10 - Prob. 11PACh. 10 - Prob. 12PACh. 10 - A retailer has annual sales of 500,000 and an...Ch. 10 - An online shoe retailers annual cost of holding...Ch. 10 - Prob. 15PACh. 10 - Prob. 16PACh. 10 - Prob. 17PACh. 10 - Prob. 18PACh. 10 - Prob. 19PACh. 10 - Prob. 1CCh. 10 - Prob. 3CCh. 10 - Prob. 4C
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- Please show work so I can understand it. Given this information: •Expected demand during lead time = 800 units • Standard deviation of lead time demand = 40 units Assuming that lead time demand is distributed normally. The risk of stockout is 5 percent during lead time (a) What amount of safety stock is appropriate? (b) Calculate ROParrow_forwardAl Fursan Inc. needs 300 kgs of a material per month (four weeks). It costs RO 10 to make and receive an order, and it takes 16 workdays to receive it. The annual holding cost is 15 % of purchase price. The price RO1 per kg. The company is operating 6 days per week. What is the expected time (in days) between order? Round-up to the nearest integer Select one: a. 55 b. 53 c. 207 d. 105 e. 58arrow_forwardGreen Grass Industries Limited (GGIL) has used a fixed-time period inventory system that involved taking a complete inventory count of all items each month. However, increasing labor costs, are forcing GGIL, to examine alternative ways to reduce the amount of labor involved in inventory stockrooms, yet without increasing other costs, such a shortage costs. Table 10 is a random sample of 20 GGIL's items. Table 10. Annual Usage by Value of a sample of GGIL's Inventory Item Number Annual Usage ($) Item Number Annual Usage ($) 1 10,600 11 2,750 2 14,000 12 1,400 3 4,000 13 3,200 4 16,000 14 2,500 5 8,100 15 110,000 1,800 16 14,800 7 84,000 17 9,500 8. 890 18 1,700 9 940 19 3,700 10 94,000 20 12,500 a) What would you recommend GGIL to do to cut back its labor cost? (Illustrate using an ABC plan). b) Item 18 is critical to continued operations at GGIL. i. How would you recommend it be classified? ii. Give the reason(s) for your answer.arrow_forward
- What trade-offs are involved in each of these aspects of inventory management?a. Buying additional amounts to take advantage of quantity discounts.arrow_forwardConduct the ABC analysis for a convenience store, using the following percentages A inventory - most important items, generating 60% of sales B inventory - items generating the next 30% of sales Cinventory - items generating <10% of sales Stock (units) |Unit price Revenue 1000 $ 1.89 Product АВС Candy bars Cereal 200 $ 4.50 Cookies 400 $ 4.00 Milk 100 $ 2.00 200 $ 3.00 500 $ 1.50 Muffins Soda Hints 1. sort by revenue (largest to smallest) 2. calculate % of total revenue for each item 3. run a cumulative % for the items 4. identify the cut-off for each category You can run the entire exercise sorting and extending the table abovearrow_forward10 Use the information presented in the graph to answer the following questions: Annual Cost C3 C2 Q1 You are also given the following information: Q1 =450 .Q2 = 700 C1 = 350 C2 = 750 1300 Q2 Order Quantity Which annual inventory cost component does the blue line represent? Total cost Which annual inventory cost component does the green line represent? Holding cost What is the Economic Order Quantity (EQ9) based on th Which annual inventory cost component does the red line represent? Ordering cost 220arrow_forward
- Do you think the safety stock (safety inventory) could be negative? What is the meaning of a negative safety inventory (hint: safety stock is the difference between the optimal inventory and the average demand)?arrow_forwardThe materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. If the order size was 1,000 kilograms of resin, what would be the average inventory level?arrow_forwardExplain the detailed steps in an ABC Analysis and illustrate the steps using the example of a company’s inventory that is given below. Part/ Bahagian Unit Cost/ Kos Unit (RM) Annual Usage / Penggunaan Tahunan 1 6 100 2 21 300 3 12 280 4 22 320 5 8 150 6 15 180 7 14 280 8 25 300 9 10 260 10 18 160arrow_forward
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