1. (Periodic Review System Problem) Jimmy\'s Delicatessen sells large tins of To
ID: 361051 • Letter: 1
Question
1. (Periodic Review System Problem) Jimmy's Delicatessen sells large tins of Tom Tucker's Toffee. The deli uses a periodic review system, checking inventory levels every 10 days, at which time an order is placed for more tins. Order lead time is 3 days. Average daily demand is 7 tins, so average demand during the reorder period and order lead time (13 days) is 91 tins. a· The standard deviation of demand during this same 13-day period is 17 tins. Calculate the restocking level. Assume that the desired service level is 90%. b. Suppose that the standard deviation of demand during the 13-day period drops to 4 tins. What happens to the restocking level? Explain why 2. (Continuous Review System: EOQ, EOQ with Price Breaks, and ROP) KraftyCity is a large retailer that sells power tools and other hardware supplies. One of its products is the KraftyMan workbench. Information on the workbench is as follows Annual demand = 1,200 Holding Cost = $15 per year Ordering Cost- S200 per order a. What is the economic order quantity for the workbench? b. Suppose that KraftyCity gas to pay S50 per workbench for orders under 200 but only $42 per workbench for orders of 201 or more. Using the information provided above, what order quantity should KraftyCity use? c. The lead time for KraftyCity workbenches is 3 weeks, with a standard deviation of 1.2 weeks, and the average weekly demand is 24, with a standard deviation of 8 workbenches. what should the reorder point be if KraftyCity wants to provide a 95% service level (F 1.65)? Now suppose the supplier of workbenches guarantees KraftyCity that the lead time will be a constant 3 week, with no variability (i.e., standard deviation of lead time = 0). Recalculate the reorder point, using the demand and service level information in problem c. Is the reorder point higher or lower? Explain. d. 3. (Continuous Review System: EOQ, EOQ with Price Breaks, and ROP) Ollah's Organic Pet Shop sells about 4,000 bags of free-range dog biscuits every year. The fixed ordering cost is S15, and the cost of holding a bag in inventory for a year is S2. a. What is the economic order quantity for the biscuits? b. Suppose Ollah decides to order 200 bags at a time. What would be the total ordering and holding costs for the year be? (For this problem don't consider safety stock when calculating holding costs.) c. Average weekly demand for free-range dog biscuits is 80 bags per week, with a standard deviation of 16 bags. Ollah uses a continuous inventory review system to manage inventory of the biscuits. Ollah wants to set the reorder point high enough that there is only a 5% chance of running out before the next order comes in (z-1.65). Assuming that the lead time is a constant 2 weeks, what should be the reorder point be? 4. (Single Period Inventory System) David Polston prints up T-shirts to be sold at local concerts. The T-shirts sell for S20 each but cost David only S6.50 each. However, because the T-shirts have concert-specific information on them, David can sell a leftover shirt for only $3. Suppose the demand for shirts can be approx shirts, with a standard deviation of 35. What is the target service level? How many shirts should David print up for a concert? imated with a normal distribution and the mean demand is 120Explanation / Answer
1. Review period, P = 10 days
Lead time, L = 3 days
Average demand during (L+P), d = 91
a) Std deviation of demand during (L+P), s = 17
Service level = 90% , corresponding z-value = 1.28
Restocking level = d + z*s = 91 + 1.28*17 = 112.76
b) New restocking level = 91 + 1.28*4 = 96.12
We see that restocking level reduced with reduction in standard deviation of demand. This is because, the variability is demand reduced, therefore, there is less uncertainty, and hence less safety stock is maintained, resulting in reduced restocking level.
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