Question details

If the five days lead time is required to receive an order of coal, how much coal should be in
$ 15.00

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COMM 225: POM

TOPIC

4

:

INVENTORY

MANAGEMENT

QUESTION

S

(

Tutorial

with Answers

)

Q1 (Ref: Q.

13

-

12, p583

)

: The

purchasing

manager for

the Pacific Steel company must determine a policy for

ordering coal to operate 12 converters. each converter

requires exactly 5 tons of coal per day to operate , and

the firm operates 360 days per year . the purchasing

manger has determined t

hat the ordering cost is $80

per order , and the cost of holding coal is 20% of the

average value of inventory held . the purchasing

manager has negotiated a contract to obtain the coal

for $12 per ton for the coming year.

a.

Determine the optimal quantity of

coal to

receive in each order.

b.

Determine the total inventory

-

related costs

associated with the optimal ordering policy

(don’t include the cost of the coal).

c.

If the five days lead time is required to receive

an order of coal, how much coal should be in

han

d when an order is placed?

Answers:

Optimal quantity of coal =1200 tons

; Total

inventory

-

related costs = $2880

;

Re

-

order point = 300

tons.

Q2

(Ref: Q.

13

-

23, p585

)

: T

he

bookstore at Tech

purchases jackets emblazoned with the school name

and logo from a vendor. The vendor sells

the

jackets to

the store for $38 apiece. The cost to the bookstore for

placing an order is $120, and the annual carrying cost is

25% of the cost o

f jacket. The bookstore manager

estimates that 1700 jackets will be sold during the year.

The vendor has offered the bookstore the following

volume discount schedule:

Order Size

Discount

1

-

299

300

-

499

500

-

799

800+

0%

2%

4%

5%

What is the bookstore op

timal order quantity, give this

quantity discount information?

Answers:

Optimal quantity of coal =

500

tons; Total

inventory

-

related costs =

$ 64,704

Q3

(Ref: Q.

13

-

32, p585

)

:

Kelly’s Tavern serves

Shamrock draft beer to its customer. The daily demand

for

beer is normal distributed, with an average of 20

gallons and stander deviation of 4 gallons. The lead

time required to receive an order of beer from the local

distributor is 12 days. Determined the safety stock and

reorder point if the restaurant want to

maintain a 90%

service level were desired?

What would be the increase

in the safety stock if a 95% service level is desired?

Answers:

At 90% service level, safety stock

=

17.87

gal

,

Reorder point = 257.87 gal;

at

95% service level,

s

afety

stock

=

22.86

gal

;

there is an increase of 5 gallons.

Q4

(Ref: Q.

13

-

38, p586):

The Mediterranean

Restaurant stocks a red Chilean table wine it purchases

from a wine merchant in nearby city. The daily demand

for the wine at the res

taurant is normally distributed

,

with a mea

n of 18 bottles and stander deviation of 4

bottles. The wine merchant sends a representative to

check the restaurant’s wine cellar every 30 days, and

during a recent visit there were 25 bottles in stock. The

lead time to receive an order is 2 days. The

restaurant

manger has requested an order size that will enable

him to

limit the probability of

a stock out to 5%.

What

is the order size?

Answers:

Order Size

=

588.3 bottles

Q5

(Ref: Q.

13

-

40, p586):

The East Coasters Bicycle

shop stocks bikes; helmets ; clothing; a variety of bike

parts including chains, gears , tires, wheels; and biking

accessories. The shop is in a storefront location on a

busy street and it has very limited storage space for

inven

tory. It often runs out of items and is unable to

serve customer. To help manage its inventory the shop

would like to classify the stock using the ABC system.

Following is a list of items the shop stocks and the

annual demand and unit value for each:

Item

Number

Annual

demand

Unit

cost

Item

Number

Annual

demand

Unit

cost

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

10

18

36

9

4

3

19

56

105

27

19

12

7

10

6

18

$8

16

30

1230

760

810

420

35

17

350

36

115

2300

245

665

28

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

110

74

8

10

7

5

5

46

32

101

83

54

14

9

7

16

$23

18

610

935

270

1400

900

67

160

45

12

16

42

705

37

26

Classify the inventory items according to the ABC

approach using dollar value of annual demand

 

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2

Answers:

Class

Items

Quantity

$

Value

%

Value

%

Quantity

A

4, 5, 6,

13, 20,

52

59,835

51

5.5

22, 23,

30

B

7, 10,

14,

77

30,640

26

8.2

15, 19,

21

C

1, 2, 3,

8, 9,

11,

811

27,493

23

86.3

12, 16,

17, 18,

24, 25,

26, 27,

28, 29,

31, 32

940

$117,968

100%

100%

Available solutions