An online store sells a product for which the daily demand is normally distributed with a mean of 120 units and with a standard deviation of 10 units. We assume the source of supply has a constant lead time of 14 days. The cost for placing an order is $75 and the annual holding cost per item is $0.5. There is no stock out cost and we assume that unfilled orders are filled as soon as the orders arrives. Sales operate 365 days/year. The company wants to have a 95% service level of not stocking out during the lead time.the pack items in customised packages, labelling etc. Before shipping, they store the products in an internal warehouse. Between the warehouse and the package line they want to use a Kanban system. The package line is supported by a materials manager, who inspects the line every hour. According to his notes, the time from demand to replenishment is 3 hours. They transport the products in containers, each containing 20 units. The package line work only day shift, i.e. the operation time per day is 6 hours.
1. What's the number of Kanban cards they need, if a safety factor of 0.3 is used?
The company also wants to see if they can use a Kanban system towards the supplier, instead of the ROP system. They want to keep the same service level, i.e. 95%. As stated in question FE 5, the daily demand is normally distributed with a mean 120 and a standard deviation of 10. The lead time is 14 days. The supplier ships in boxes each containing 50 units. (Hint: You will need the Safety Stock value to answer the questions below.)
2. What will the safety factor a need to be?
3. How many Kanban cards do they need in this case?