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    Sunu 2

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    ahmed
    This document summarizes two case studies related to inventory management. For the first case study, the assistant provides advice on order quantity and reorder point for a bicycle shop based on forecasted monthly demand. For the second case study, the assistant computes the optimal order quantity for a sound systems company, determines the appropriate reorder point, and calculates the cost savings from implementing the optimal policy. The critical assumption of constant demand is noted for the bicycle shop, and an improved policy accounting for variable monthly demand is suggested.

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    Sunu 2

    Uploaded by

    ahmed
    376 views1 page
    This document summarizes two case studies related to inventory management. For the first case study, the assistant provides advice on order quantity and reorder point for a bicycle shop based on forecasted monthly demand. For the second case study, the assistant computes the optimal order quantity for a sound systems company, determines the appropriate reorder point, and calculates the cost savings from implementing the optimal policy. The critical assumption of constant demand is noted for the bicycle shop, and an improved policy accounting for variable monthly demand is suggested.

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    This document summarizes two case studies related to inventory management. For the first case study, the assistant provides advice on order quantity and reorder point for a bicycle shop based on forecasted monthly demand. For the second case study, the assistant computes the optimal order quantity for a sound systems company, determines the appropriate reorder point, and calculates the cost savings from implementing the optimal policy. The critical assumption of constant demand is noted for the bicycle shop, and an improved policy accounting for variable monthly demand is suggested.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    376 views1 page

    Sunu 2

    Uploaded by

    ahmed
    This document summarizes two case studies related to inventory management. For the first case study, the assistant provides advice on order quantity and reorder point for a bicycle shop based on forecasted monthly demand. For the second case study, the assistant computes the optimal order quantity for a sound systems company, determines the appropriate reorder point, and calculates the cost savings from implementing the optimal policy. The critical assumption of constant demand is noted for the bicycle shop, and an improved policy accounting for variable monthly demand is suggested.

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    CHAPTER 12 M A N A G I N G I N V E N T O RY 178

    CASE STUDIES standard deviations. This will lead to an increased chance of a


    stockout during the peak demand months. A better policy would
    1 HERRER’S BICYCLE SHOP, TILBURG, THE be to calculate a reorder point which changes based on the month.
    NETHERLANDS
    1. Given the data, can you provide advice to Jo on the order Data
    quantity and reorder point?
    2008 2009 2010 Forecast
    The forecasted demand for all the 12 months of 2010 is 888 Jan 12 14 16
    bicycles. Hence the average demand per month = 888/12 = 74
    Feb 23 26 30
    bicycles. The standard deviation of the monthly demand = 57.78
    bicycles. Other parameters of the problem are given below. Mar 43 51 59
    Apr 83 97 113
    Order cost = $100/order
    Cost per bicycle = $200 May 162 193 225
    Holding cost = ($200) × (18%) = $36 per year per bicycle Jun 83 97 113

    Using the simple EOQ model, the economic order quantity (Q*) is Jul 62 73 85
    calculated as follows. Aug 33 39 45
    Sep 21 25 29
    Oct 22 25 29
    Nov 42 51 59
    Dec 61 73 85

    2 STURDIVANT SOUND SYSTEMS


    Service level = 95%, with corresponding Z value of 1.645 1. Compute the optimal order quantity. First, determine the cost
    Lead time = 1 month (4 weeks) under the present policy:
    Number of orders/year = 52 weeks ÷ 4 weeks = 13 orders
    The reorder point (ROP) is calculated by the following relation: Average order size = 5,000/13 = 384.6 or 385 units
    Total cost = order cost + holding cost + purchase cost
    ROP = Average demand during the lead time (µ) Purchase cost = 5000 units ¥ 60/unit    = 300,000
    + Z × (Standard deviation of the demand during the lead time (s) Order cost = $20/order ¥ 13 orders = 260

    Therefore, ROP = 74 + 1.645 (57.78) = 169.01 bicycles (rounded 384.6 units/Order ¥ $6 / unit
    Carrying cost = = 1154
    up to 170). 2
    Total cost = $301,414
    Note: Did not round 384.6 above.
    2. If Jo wanted to increase service to 99%, what would the new Next, develop an Economic Order Quantity and determine the
    reorder point be? How much additional holding costs would total costs:
    result? 2 DS 2 ¥ 5,000 ¥ 20
    Q= = = 182.5, or 183 units
    H 6
    For 99% service level, Z value is 2.326. Hence the new reorder
    point is, where D = annual demand, S = setup or order cost, H = holding
    cost.
    ROP = 74 + 2.326 (57.78) = 208.39 bicycles (rounded up to 209)
    2. Determine the appropriate reorder point (in units).
    Thus, with the new service level, the reorder point is 209 units. Reorder point = Demand during lead time = 20 ¥ 5 = 100
    This represents 39 additional units of safety stock, or an additional 3. Compute the cost savings that the company will realize if it
    $1404 in holding cost per annum. implements the optimal inventory procurement decision.

    3. What critical assumption is not met in the analysis above? What


    improvements on the policy can you imagine?

    The EOQ model assumes a constant demand which is not the case
    here. That said, the EOQ model is notoriously robust. More
    critical is basing the ROP on average monthly demand and

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