# HW5 - Fall 2009 BMGT 385 Professor Elmaghraby HW 5 1...

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Unformatted text preview: Fall 2009 BMGT 385 Professor Elmaghraby HW 5 1. Question 11.9, Chapter 11 of Cachon and Terwiesch [10 points, 2 points for questions a. and b., 3 points for question c and d.] 2. Economic Order Quantity with reorder point [10 points] Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year. Ite m c o s t is \$ 1 0 O rd e r c o s t is \$ 2 5 0 A n n u a l h o ld in g c o s t (% ) is 3 3 \$ % o f ite m c o s t A nnual dem and 25750 a) How often the manager should order and how much should she order each time? [4 points] b) Determine the annual holding and order cost [3 points] c) If a discount of \$50 per order were offered for any purchase quantity greater than or equal to 2000, would you take advantage of it? If yes, how much would you save annually? [3 points] 3. Economic Order Quantity Model with Safety Stock [10 points] Daily demand for a certain product is normally distributed with a mean of 60 and standard deviation of 7. The source of supply is reliable and maintains constant lead time of 6 days. The cost of placing the order is \$10 and annual holding costs are \$0.50 per unit. Assume sales occur over entire 365 days of the year. Answer the following questions: a) Find the optimal order quantity [4 points] b) Find the reorder point to satisfy a 95% in-stock probability, i.e., 95% of not stocking out during the lead time. [4 points] Fall 2009 Professor Elmaghraby c) If the constant leadtime now becomes 5 days, is it possible to maintain the same reorder point you found in part (b) while simultaneously improving the in-stock probability up to 99%? Explain your answer. [2 points] 4. Fixed-Time period Model with Safety Stock [10 points] Daily demand for a product is 10 units with the standard deviation of 3 units. The review period is 30 days, and lead time is 14 days. Management has set a policy of satisfying 98% of demand from items in stock. At the beginning of this review period, there are 150 units in inventory. a) What will be the safety stock (SS) for this model? [3 points] b) How many units should be ordered at the beginning of the review period?[4 points] c) Define the answer to question (b) above as q. Will the management ever have more q units of inventory in their system? Explain your answer. [3 points] ...
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## This note was uploaded on 02/22/2011 for the course BMGT 385 taught by Professor Elmaghraby during the Fall '09 term at Maryland.

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