SupplyChainCost - Consider the following question(see slide...

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Consider the following question (see slide 47 of the Q-Model and P-Model notes) Assume • Fixed time period model • Review period = 1 week • Product A has mean demand = 50/week and standard deviation of demand = 30/week • 52 weeks/year • Service level = 97.7% (z = 2) • Cost of product A = $1000, and i = 20% (percent inventory carrying cost) • Lead time (by sea freight) = 3 weeks • Cost of sea freight included in $1000 cost of product What is the amount of inventory, and the cost of holding inventory? • Assume inventory is pipeline + cycle stock + safety stock Suppose air freight will reduce lead time to 1 week, but costs $20 extra per product. Should you use air freight? What if air freight costs $10 extra per product? Solution: Under the current assumptions (i.e., using sea freight), what is the amount of inventory, and the cost of holding inventory? Note that this is a fixed time period model: (Average) Pipeline inventory = 3*50 = 150 (Average) Cycle stock = (1*50)/2 = 25 (Average) Safety stock = 120
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  • Fall '13
  • Air Freight

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