Assignment:
Discuss the below:
Q1. Suppose that the R&B Beverage Company has a soft drink product that has a constant annual demand rate of 3600 cases. A case of the soft drink costs R&B $3. Ordering costs are $20 per order and holding costs are 25% of the value of the inventory per year. R&B has 250 working days per year and the lead time is 5 days. Identify the following aspects of the inventory policy.
(a) Economic order quantity
(b) Reorder point
(c) Total annual cost (You don't need to include the annual purchase cost)
Q2. The Gilbert Air-Conditioning Company is considering the purchase of a special shipment of portable air conditioners manufactured in Japan. Each unit will cost Gilbert $80, and it will be sold for $125. Gilbert does not want to carry surplus air conditioners over until the following year. Thus, all surplus air conditioners will be sold to a wholesaler for $50 per unit. Assume that the air conditioner demand follows a normal probability distribution with mean 20 units and standard deviation 8 units.
(a) What is the recommended order quantity?
(b) What is the probability that Gilbert will sell all units it orders?
Q3. A retail store stocks portable phones. The following data are available:
Average demand
180 units per month
Ordering cost
$40/order
Purchase cost of the portable phone
$50/unit
Interest rate charged for inventory
15% per year
a) What is the EOQ?
b) What is the total annual cost of inventory holding and ordering costs?
c) The purchasing manager believes that the ordering cost for this item could be reduced to $20/order if an EDI (Electronic Data Interchange) link were established so that orders could be transmitted electronically. Establishing this would require an initial investment so the manager is interested in the savings per year the store could expect once EDI was established. Compute these savings.
Q4. Puppy Lovers Inc. (PLI) sells a very popular blend of dog food. PLI is the exclusive distributor of this blend of dog food in Durham. Demand for the dog food has a Normal distribution with a mean of 300 cans per week and a standard deviation of 50 cans per week. They buy the dog food from Nutritious & Delicious Co. for 50 cents per can, and it takes 2 week for delivery. Any demand that cannot be satisfied is backordered, and PLI estimates that a backorder costs them 2 cents per can per week. Assume that the opportunity cost of capital is 20% annually and that there are 50 weeks in a year.
a) What is the optimal base stock level?
(b) What is PLI's average annual cost for purchasing, holding and backorders? (Include the cost of the cat food itself.)
(c) What is PLI's average inventory and average backorders?
(d) What fraction of customers find that PLI does not have the cat food in stock?
(e) Suppose PLI is not sure of their estimate of backorder costs. Instead, they want to follow a policy such that 98% of their customers find the cat food in stock. What base stock level should they use?