In order to implement Continous Review Inventory System, we would first need to

Question

In order to implement Continous Review Inventory System, we would first need to understand the basics of the system. A Continous Review Inventory System orders a fixed amount of material everytime the stock level reaches a pre-determined level. In this system the quantity to be ordered remains fixed. Since the ordering is dependent on knowing when the stock level has reached a pre-determined level, it is of utmost importance to review the stock levels continously.

Two importance components of Continous Review Inventory System are:

1) Amount to be ordered - Since this quantity is fixed, it is often calculated by using Economic Order Quantity Formula which determines the quantity to be ordered which minimizes ordering and inventory holding costs. EOQ is the amount which is ordered everytime

2) Stock level which will trigger re-ordering - ROP or Re-Ordering Point determines when the order would be placed by the company. ROP is a function of Safety Stock and average demand during lead time. Safety Stock is generally determined on basis of service factor, lead time, standard deviation in lead time, average demand and standard deviation in demand.

With this information, we can find out the parameters which will be required to model Continous Review Inventory System.The parameters are mentioned below:

1) Desired Service Level - An important parameter which has impact on Safety Stock calculations

2) No quantity discounts permitted - With quantity discounts, the formula for EOQ changes and needs to be adjusted accordingly.

3) Known and constant cost information

4) Target (maximum) inventory value

5) Lead time parameters - Required to calculate Safety Stock and Demand during lead time

6) Known and constant lead time

7) Known and constant demand rate

8) Number of items in her system - Inventory policy will be different for each item hence it will be required

9) Standard Deviation of Lead Time Demand

Above parameters would help Lisa in setting up of Continous Review Inventory system.

Q2 is already answered correctly so no comments there.

Q3) Lisa can also opt for Fixed Time Period System model of inventory review. In Fixed Time Period System, only that much amount of inventory is ordered which can fill the stock level to pre-determined levels. This system is also called as Replenishment System. Few of the parameters to model the system are mentioned below:

1) Demand for each item

2) Lead time average and standard deviation

3) Annual demand and standad deviation

4) Target stock level

Q4 is again answered so will not change.

Explanation / Answer

Lisa Fleet, the manager of an automotive repair shop, hopes to achieve a of invento better allocation ry control efforts through an examination of historical usage for various parts. s 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 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. Average Shop Shop Service Time Average Standard Deviation Item Item Weekly Demand of Weekly Demand Purchase Price Service Time Std Deviation 3 days 4 days 10 minutes 2 hours 2 days $200 ay 1 unit 5 units 12 units 23 units 6 units 2 units 1 unit 4 units Water pump Starter motor 1 day negligible 28 units 79 units Battery Spark plug Belt Generator Alternator Wiper refill 183 units 1 day 1 day 8 units 5 units 91 units 175 190 14 4 days 5 minutes negligible In order to implement her desire to utilize a continuous review inventory system, Lisa needs to make a variety of modeling assumptions for each item in order to determine the appropriate order quantity (Q. Identify the relevant modeling assumptions in the following list for Lisa by checking the associated box. 1. known and constant cost information target (maximum) inventory value desired service level one product storage space requirements no quantity discounts permitted no stock outs allowed lead time parameters (avg and ) known and constant order lead time known and constant demand rate desired length of review period instantaneous resupply competition's cost information number of items in her system standard deviation of lead time demand order interval to use

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