Haley Photocopying purchases paper from an out-of-state vendor. Average weekly d
ID: 344271 • Letter: H
Question
Haley Photocopying purchases paper from an out-of-state vendor. Average weekly demand for paper is
180
cartons per week for which Haley pays
$30
per carton. Inbound shipments from the vendor average
950
cartons with an average lead time of
5
weeks. Haley operates 52 weeks per year; it carries a
6
-week
supply of inventory as safety stock and no anticipation inventory. The vendor has recently announced that they will be building a facility near Haley Photocopying that will reduce lead time to
four
weeks
.
Further, they will be able to reduce shipments to
200
cartons. Haley believes that they will be able to reduce safety stock to a
4
-week
The changes decrease Haley's average aggregate inventory level by how many cartons AND HOW MUCH VALUE?
Explanation / Answer
Average aggregate inventory level can be defined as :
Average aggregate inventory level
= Cycle inventory ( ie the order quantity) / 2 + Safety stock
In the first case, aggregate inventory level
= Order quantity /2 + Average weekly demand x Number of weeks of supply inventory
= 950/2 + 180 x 6
= 475 + 1080
= 1555
In the second case, aggregate inventory level
= Order quantity / 2 + annual weekly demand x Number of weeks of supply inventory
= 200 / 2 + 180 x 4
= 100 + 720
= 820
Decrease in Haley’s average inventory level = 1555 – 820 = 735
Decrease in Haley’s average inventory level by value = $30 / carton x 735 cartons = $22050
DECREASE IN HALEY’S AVERAGE INVENTORY LEVEL = 735
DECREASE IN HALEY’S AVERAGE INVENTORY LEVEL BY VALUE = $22050
DECREASE IN HALEY’S AVERAGE INVENTORY LEVEL = 735
DECREASE IN HALEY’S AVERAGE INVENTORY LEVEL BY VALUE = $22050
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