Practice Questions - Inventory Management Answers

# Practice Questions - Inventory Management Answers -...

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Practice Questions: Inventory Management 1. SY Manufacturers (SYM) is producing T-shirts in 3 colors: red, blue and white. The monthly demand for each color is 3000 units. Each shirt requires 0.5 pounds of raw cot- ton that is imported from the Luft-Geshfet-Textile (LGT) Company in Brazil. The pur- chasing price per pound is \$2.5 (paid only when the cotton arrives to the SYM’s facilit- ies) and transportation cost by sea is \$0.20 per pound. The traveling time from LGT’s fa- cility in Brazil to the SYM facility in the USA is 2 weeks. The cost of placing a cotton order, by SYM, is \$100 and the annual interest rate that SYM is facing is 20%. a. What is optimal order quantity of cotton? Total demand (D) = 3*12 months * 3000 units * 0.5 pound = 54000 pounds Total purchasing cost per unit (c) = \$2.5 + \$0.20 = 2.70 Set up cost (S) = \$100 Holding cost per unit = 2.70 * 20% = \$0.54 pounds H DS EOQ 4472 54 . 0 100 * 54000 * 2 2 = = = 4,472 pounds per order. b. How frequent should the company order cotton? Let us begin with the number of orders. Number of orders = Total demand / EOQ = 54000 / 4472 = 12.08 times That is the SYM orders 12.08 times a year. The company orders every 12 months / 12.08 = 0.99 months c. Assuming that the first order is needed in 04/01/2007 when should SYM place the order? Recall that the delivery lead-time is 2 weeks.

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## Practice Questions - Inventory Management Answers -...

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