Operations and Supply Chain Management The Core

388 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
standard muffler. Use the following information to determine the best order size
and the reorder point:
Annual demand 3,500 mufflers Ordering cost $50 per order
Standard deviation of 6 mufflers per Service probability 90%
daily demand working day
Item cost $30 per muffler Lead time 2 working days
Annual holding cost 25% of item value Working days 300 per year
28. After graduation, you decide to go into a partnership in an office supply store
that has existed for a number of years. Walking through the store and stockrooms,
you find a great discrepancy in service levels. Some spaces and bins for items
are completely empty; others have supplies that are covered with dust and have
obviously been there a long time. You decide to take on the project of establishing
consistent levels of inventory to meet customer demands. Most of your supplies are
purchased from just a few distributors that call on your store once every two weeks.
You choose, as your first item for study, computer printer paper. You examine
the sales records and purchase orders and find that demand for the past 12 months
was 5,000 boxes. Using your calculator, you sample some days’ demands and
estimate that the standard deviation of daily demand is 10 boxes. You also search
out these figures:
Cost per box of paper: $11
Desired service probability: 98 percent
Store is open every day.
Salesperson visits every two weeks.
Delivery time following visit is three days.
Using your procedure, how many boxes of paper would be ordered if, on the day
the salesperson calls, 60 boxes are on-hand?
29. A distributor of large appliances needs to determine the order quantities and
reorder points for the various products it carries. The following data refer to a
specific refrigerator in its product line:
Cost to place an order
Holding cost
Cost of refrigerator
Annual demand
Standard deviation of demand during lead time
Lead time
$100/order
20 percent of product cost per year
$500/unit
500 units
10 units
7 days
Consider an even daily demand and a 365-day year.
a. What is the economic order quantity?
b. If the distributor wants a 97 percent service probability, what reorder point, R,
should be used?
30. It is your responsibility, as the new head of the automotive section of Nichols
Department Store, to ensure that reorder quantities for the various items have been
correctly established. You decide to test one item and choose Michelin tires, XW
size 185 × 14 BSW. A perpetual inventory system has been used, so you examine
this as well as other records and come up with the following data:
Cost per tire
Holding cost
Demand
Ordering cost
Standard deviation of daily demand
Delivery lead time
$35 each
20 percent of tire cost per year
1,000 per year
$20 per order
3 tires
4 days