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Practice Questions Inventory Mgt._Revised_Ans_2011

# Practice Questions Inventory Mgt._Revised_Ans_2011 -...

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Practice Question – Inventory Mgt. 1. The following data are estimated for 3/8inch hand drills at a regional warehouse that operates 5 days a week, 52 weeks a year. Avg. daily demand: 100 drills; Standard deviation of daily demand: 30 drills Lead time: 3 days; Holding cost: \$9.40/unit/yr.; Ordering cost: \$35/order CSL: 92% The warehouse uses a continuous review system. a) What order quantity and reorder point (ROP) should be used? EOQ = √(2*D*S)/H Where D = 100/day*5 days* 52 weeks = 26000/yr; S= \$35/order; H = \$9.40/unit/yr Thus EOQ = √(2*26000*35)/9.40 = 440 drills ROP = Avg use during lead time period + Safety Stock = Daily avg demand * lead time period + Safety Stock Safety stock with uncertain demand = (Z value corresponding to chosen CSL) *(standard deviation of demand during the lead time) = Z value * (Standard deviation of demand/day * √Lead Time) Z value corresponding to chosen CSL of 92% = 1.40 (see Z corresponding to area of Z table closest to .9200) Thus Safety Stock = 1.40 * 30 * √3 = 72.74 drills = 73 drills Thus ROP = 100 * 3 + 73 = 373 drills

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Practice Questions Inventory Mgt._Revised_Ans_2011 -...

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