Unformatted text preview: ter 0.5 week.
Jenny wants to maintain
Jenny wants to maintain a
service
service level of 85%.
When should Jenny reorder?
reorder? 23 Stephen Shum Spring 2009 24
24 Example: Microwave Ovens
Example: Microwave Ovens
The leadtime demand for microwave ovens is found to be
di
distributed according to the following probability
th
distribution:
Demand 6 7 8 9 10 11 12 13 14 Probability 0.02 0.03 0.1 0.24 0.4 0.15 0.03 0.02 0.01
Probability 0.4 0.4
0.3 0.24 0.2 0.15
0.1 0.1 0.03 0.02 0.02 0.03 0.01 0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Demand Using fixedorder quantity model, and a 95% service level,
what should the reorder point be? What is the safety stock? ROP for Discrete Demand
ROP for Discrete Demand
Probability 0.4 0.4
0.3 0.24 0.2 0.15
0.1 0.1 0.03 0.02 0.02 0.03 0.01 0
0 1 2 3 4 5 6 7 8 9 10 11 Demand 79%
94%
26 97% 12 13 14 15 Summary
Summary of FixedOrder Quantity
FixedModel Optimal Order Quantity:
Optimal Order Quantity: Q, use EOQ
use EOQ
Reorder Point = Average demand during lead time
+ Safety stock: ROP = d L + SS
Safety Stock is determined based on
– Service level
– Demand variability
– Lead time Average inventory = Q / 2 + SS (assume cash on
delivery) Exercise: FixedOrder Model
Exercise: Fixed
Model
The annual demand for a product is 15,600 units. The weekly demand is
300 units with a standard deviation of 90 units. The cost to place an order
is $31.20, and the time from ordering to receipt is four weeks. The annual
inventory carrying cost is $0.10 per unit.
Find
Find the optimal ordering quantity and the reorder point necessary to
provide a 98 percent service level. (Fact: NORMSINV(0.98) = 2.05) Suppose the production manager is asked to reduce the safety stock of
this item by 50 percent. If she does so, what will the new service level be?
hi
50
If
(Hint:
(Hint: you can write the answer using the NORMSDIST function) 28 Next Class
Next Class Inventory Management III
– FixedTime Period Model
Time Period Model 29 Man Yu  Spring
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 Discrete Demand

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