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Problem Maximart

The inventory manager of Maximart Sales wants to establish an optimal ordering policy for an item with weekly demand that follows a normal distribution with a mean of 300 units and standard deviation of 70 units. The company faces different costs for ordering, holding inventory, and lost sales. The simulation should investigate the average total weekly costs for different order sizes and reorder points over 200 weeks starting with an initial inventory of 1,000 units.

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Jiro Sekine
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65 views1 page

Problem Maximart

The inventory manager of Maximart Sales wants to establish an optimal ordering policy for an item with weekly demand that follows a normal distribution with a mean of 300 units and standard deviation of 70 units. The company faces different costs for ordering, holding inventory, and lost sales. The simulation should investigate the average total weekly costs for different order sizes and reorder points over 200 weeks starting with an initial inventory of 1,000 units.

Uploaded by

Jiro Sekine
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Maximart Sales

The inventory manager of Maximart Sales wants to establish optimum ordering policy.
Weekly demand for a particular item (one of many Maximart handles) follows a normal
distribution with a mean of 300 units and a standard deviation of 70 units. The
supplier sells at the following schedule for volume discounts:

Order quantity, units 1-999 1,000-3,999 4,000 or more


Price, P/unit 5,000 4,750 4,500

It costs P6,250 to place an order and P30 to hold a unit in inventory for 1 week. The
lead time between placing an order and receiving it, inspected and ready for use,
varies from one order to the next. Most orders take 2 weeks from the time of ordering
until they’re received and available for use. However, 30% of the orders take 3 weeks,
and 10% take only 1 week.

When demand cannot be satisfied from stock, some customers are willing to back
order and wait another week or two for delivery – but many others are not. The
percentage of customers who are unwilling to wait for delivery varies between 50%
and 90%, with any percentage in between equally likely. The company estimates it
loses P5,250 profit for a lost sale.

An order will be placed on any week for which the ending inventory is equal to or less
than the reorder point, provided that the amount already ordered but not yet received
is not more than twice the reorder point, i.e., provided there are no more than two
outstanding orders.

Assuming that the inventory at the beginning of the first week is 1,000 units, simulate
200 weeks of operation. Use your model to investigate the average total weekly cost
of different order sizes and reorder points.

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