Operations Management
2nd Edition
ISBN: 9781260484687
Author: CACHON, Gerard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 14, Problem 19CQ
Summary Introduction
To identify: The main benefit of reducing the lead time.
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A store has collected the following information on one of its products:Demand = 4,500 units/year Standard deviation of weekly demand = 12 units Ordering costs = $40/order Holding costs = $3/unit/year Cycle-service level = 90% (z for 90% = 1.28) Lead-time = 2 weeks Number of weeks per year = 52 weeks a.
If a firm uses the continuous review system to control the inventory, what would be the order quantity and reorder point?
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.
1- How do you think each system can affect your procurement procedures/methods?
Chapter 14 Solutions
Operations Management
Ch. 14 - Demand in each period follows the same normal...Ch. 14 - Prob. 2CQCh. 14 - For products with slow-moving demandfor example,...Ch. 14 - Prob. 4CQCh. 14 - Prob. 5CQCh. 14 - Prob. 6CQCh. 14 - Prob. 7CQCh. 14 - Prob. 8CQCh. 14 - If the target in-stock probability increases, then...Ch. 14 - Prob. 10CQ
Ch. 14 - Prob. 11CQCh. 14 - Prob. 12CQCh. 14 - Prob. 13CQCh. 14 - Prob. 14CQCh. 14 - Prob. 15CQCh. 14 - Prob. 16CQCh. 14 - Prob. 17CQCh. 14 - Prob. 18CQCh. 14 - Prob. 19CQCh. 14 - Prob. 1PACh. 14 - Prob. 2PACh. 14 - Prob. 3PACh. 14 - Prob. 4PACh. 14 - You are the owner of Hotspices.com, an online...Ch. 14 - Prob. 6PACh. 14 - Prob. 7PACh. 14 - Prob. 8PACh. 14 - Prob. 9PACh. 14 - Prob. 10PACh. 14 - Prob. 11PACh. 14 - Prob. 1CCh. 14 - Prob. 2CCh. 14 - Prob. 3CCh. 14 - CASE WARKWORTH FURNITURE1 Warkworth Furniture...Ch. 14 - CASE WARKWORTH FURNITURE1 Warkworth Furniture...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.Similar questions
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- Which of the following statements is FALSE of a fixed-quantity system (FQS)? Select one: a. In FQS, fixed quantity is ordered to bring the inventory position up to the replenishment level. b. In FQS with uncertain demand, the reorder point is chosen to include the demand during lead time, plus any safety stock. c. In FQS, inventory position is checked continuously, rather than at fixed intervals of time. d. In FQS, orders are placed when the inventory position reaches or drops below the reorder point. e. In FQS with uncertain demand, orders are placed with the same order quantity, but not necessarily with the same periodicity.arrow_forwardA retailer uses the order-up-to model to manage inventory of an item in a store. The leadtime for replenishments is four weeks and it can place orders weekly. Weekly demand isPoisson with mean 0.10 unit. Its order-up-to level is five and unfilled demand is backordered. What is the coefficient of variation of its orders?arrow_forwardA product's demand in cach period follows a Normal distribution with mean of 50 and standard deviation of 6. The order up to level S is 225. Lead time is 3 periods. What is the Expected On hand Inventory? Show all formulas used. calculations and results. What is the stock out probability ? Show all formulas used, calculations and results.arrow_forward
- Oriental Healthcare is a multi-specialty hospital catering to a variety of illnessesconnected to the heart and respiratory systems. The demand for a class of medicalconsumable is generally random. Recently, an examination of the stores records overa period of 10 weeks revealed the following weekly consumption pattern:Week No. Consumption(Units)1 1202 1093 894 1405 1106 1457 778 1209 13010 80The supplier of the item takes on an average 2 weeks to deliver once the order isplaced. Design an appropriate inventory control policy for a periodic review systemfor a review frequency of 4 weeks for a 99% service levelarrow_forwardIn a periodic order system, the lead time for a box of weed killer is 2 weeks. The review period is 1 week. Demand during the protection interval (i.e. review period +lead time) averages 218 boxes, with a standard deviation of 40 boxes. a.) What is the cycle-service level when the target inventory is set at 300 boxes? b.) In the fall season, demand for weed killer decreases but also becomes more variable. Assume demand during the protection interval is expected to decrease to 180 boxes, but with a standard deviation of 50 boxes. What would be the cycle-service level if management keeps the target inventory level set at 300 boxes? C) if the solution is feasible, should the order quantity changearrow_forwardWhich one of the following variables is not explicitly considered in the computation of the Economic Order Quantity? a. Per unit per year cost of storage and storage insurance for the inventories purchased b. Annual quantity forecasted by the firm that will satisfy the demand of the customers c. Any deductions from the selling price granted by the suppliers to the buyers due to certain quantities reached d. Ordering or transaction cost that must be constant regardless of quantity orderedarrow_forward
- An electronics retailer wants to develop an inventory policy to achieve 99% chance of not getting stockouts for a chip. The daily demand for the chip is estimated to be Normal with mean 200 and standard deviation of 20. They count the chip inventory every 2 weeks to place an order, and it takes 11 days for the ordered chips to be delivered. The retailer operates 7 days a week, 365 days a year. They are going to implement an order-up-to model. A) What base stock level should they choose? B) What is the number of chips they would have on order (on average)? C) When they checked their inventory of chips to place a new order, they found that they ran out of stock completely. In addition, they have 10 chips on way to be delivered, while there are five customers who paid for 20 chips in total and are waiting to receive their chips. How many chips should the retailer order?arrow_forwardA small grocery store sells fresh produce, which it obtains from a local farmer. During the strawberry season, demand for fresh strawberries can be reasonably approximated using a normal distribution with a mean of 40 quarts per day and a standard deviation of 6 quarts per day. Excess costsrun 35 cents per quart. The grocer orders 49 quarts per day.a. What is the implied cost of shortage per quart?b. Why might this be a reasonable figure?arrow_forwardPlease do not give solution in image format thanku Typically George Heinrich yearly uses 1500 of a certain sub assembly part that has an annual holding cost of $45 per unit. Each order placed costs George $150.In one year he finds out that his forecasting department has made an error estimating the demand and instead of the correct demand they had reported the same 1500 units and calculated the EOQ resulting in an error of %1 in optimal total cost. What is the correct demand value?arrow_forward
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