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of inventory control efforts through an examination of historical usage for vari

ID: 372403 • Letter: O

Question

of inventory control efforts through an examination of historical usage for various parts. Lisa is concerned about being able to provide superior service in order to command a competitive advantage over other local repair shops. That is one reason Lisa keeps her shop open seven days a week, 52 weeks per year. Currently, her shop inventories over 1,000 items. Although a priority of Lisa's is providing superior customer service, there are also a large number of local competitors so cost control is equally important. By keeping an inventory of some items (e.g., wiper refills), she is better able to get customers back on the road more quickly. Furthermore, Lisa uses a bar coding system that provides her a continuous count of the items she keeps inventory. Lisa has collected the following system data: Lisa's parts supplier guarantees her next day delivery, seven days a week, for all tems. .Lisa estimates her annual holding cost to be about 5 percent of the item purchase price Lisa estimates the activities required to place an order cost about $25. . Below you will find historical demand figures of 8 different items. In addition, the average service time and service time standard deviation it takes Lisa's shop to service a vehicle requiring the item is noted. Shop Service Time Std Deviation 1 day 1 day negligible 1 hour 1 day 1 day 1 day negligible Item Purchase Price Average Item Weekly Demand Water pump Starter motor Battery Spark plug Belt Generator Alternator Wiper refill Average Shop Service Time 3 days 4 days 10 minutes 2 hours 2 days of Weekly Demand 1 unit 4 units 28 units 79 units 183 units 25 units 8 units 5 units 91 units $200 5 units 12 units 23 units 6 units 2 units 1 unit 4 units 225 4 12 175 190 14 4 days 5 minutes

Explanation / Answer

By definition we know Reorder point would be the safety stock + the consumption during lead time. And Order quantity would be dependent on the holding cost (as this is the capital tied up) which in turn depends on order cost + ordering cost + Purchase price + avg demand

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