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Case 3Group 6
1)
a.Inventory system for EG151 exhaust gasket:
The EG151 exhaust gasket is purchased from an overseas supplier, Haipei, Inc.
Actual demand for the first 21weeks of 2001 is shown in the following table:
EG151
Week
Actual Demand
1
104
2
103
3
107
4
105
5
102
6
102
7
101
8
104
9
100
10
100
11
103
12
97
13
99
14
102
15
99
16
103
17
101
18
101
19
104
20
108
21
97
Total
2142
Average
102
A quick review of past orders, shown in another document, indicates that a
lot size of 150 units is being used and that the lead time from Haipei is fairly
constant at two weeks. Currently, at the end of week 21, no inventory is on hand;
11 units are backordered, and there is a scheduled receipt of 150 units.
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First we sum up the gasket sales/demand for the 21 weeks. This gives us a
total of 2142 gaskets for 21 week period.
+Total Actual Demand = Sum of each gasket
If we divide it by 21 we get average weekly sales of 102 gaskets.
+Average weekly sales = Total Actual Demand/ numbers of week
As the lead time for gaskets is two weeks we multiply this quantity by 2 and we
get a figure of 204.
+Lead time (2 weeks) = Average weekly sales x 2
We take a safety stock level of one week as this is the half of the lead time and we
add this to the figure of 204 and we get a reorder quantity of 306.
+Reorder quantity = Safety stock level (half of lead time) + Lead time
This should be the reorder quantity for EG151. This also means that the average
stock will be 204/2 that is 102 plus safety stock 102 that is 204 units.
+Average Stock = Safety stock + Average weekly sales
Now in case of EG151 the gross profit is 32 percent and so the investment in the
inventory will be 68% of $12.99 that is $8.83.
+Investment = Wholesale x (100%  % of gross profit)
The cost of carrying this will be 21 percent that is $1.85.
+Cost of carrying = Investment x 21%
If we multiply this by 204 units found above we get a yearly cost of $337.40.
+Cost of carrying (Yearly) = Cost of carrying x Lead time
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 Spring '11
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