1. You have recently been hired as a purchasing coordinator. Your primary product has an annual demand of 2000 units, and you sell the product for $80 per unit. Before you arrived shortages (or back-orders) were not allowed, but management would like to see how inventory decisions would change if shortages were not allowed. They are assuming that they can offer a 25% discount to any customer who has a backorder to prevent them from purchasing the product elsewhere. Your company purchases the product form a wholesaler, and it cost $25 to process the order, and the annual holding cost is $1 per unit per year.
(a) What is the reorder point?
(b) How many units does the warehouse need to be able to hold?
2. Suppose that your company supplies Hot Wheels to Wal-Mart, and they are your only customer. Wal-Mart Orders its EOQ of 4,500 cars each time they order. The annual demand for the cars is 300,000 Units. Your setup cost is $500 per order, and your annual holding cost is $0.75 per unit. What is your optimal order quantity and the associated annual total cost?
3. Consider a continuous review inventory system. Demand is normally distributed with an average of 13,600 per month and a monthly standard deviation of 275 units. Lead time is two weeks (assume 4 weeks per month). If the firms desires an 80% CSL, how many units of safety stock should be held, and what re-order point R should be used? (Keep 3 decimals on standard deviation, but round SS and R to integers)