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Problem 28 - Solved

This document presents a problem involving inventory management calculations for Regional Supermarket. It provides information on daily cash register tape usage, ordering and carrying costs, and seeks to calculate: 1) The economic order quantity (EOQ) 2) The reorder point (ROP) needed for a 96% service level 3) The expected number of units short per cycle and per year at a 96% service level 4) The resulting annual service level Formulas for EOQ, ROP, expected shortages, and annual service level are also provided.

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Atashi Chakma
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882 views5 pages

Problem 28 - Solved

This document presents a problem involving inventory management calculations for Regional Supermarket. It provides information on daily cash register tape usage, ordering and carrying costs, and seeks to calculate: 1) The economic order quantity (EOQ) 2) The reorder point (ROP) needed for a 96% service level 3) The expected number of units short per cycle and per year at a 96% service level 4) The resulting annual service level Formulas for EOQ, ROP, expected shortages, and annual service level are also provided.

Uploaded by

Atashi Chakma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Problem 28 of Chapter 13

28. Regional Supermarket is open 360 days per year. Daily use of cash register
tape averages 10 rolls. Usage appears normally distributed with a standard
deviation of 2 rolls per day. The cost of ordering tape is $1, and carrying costs
are 40 cents per roll a year. Lead time is three days.

a. What is the EOQ?


b. What ROP will provide a lead time service level of 96 percent?
c. What is the expected number of units short per cycle with 96 percent? Per
year?
d. What is the annual service level?

a. EOQ, Q = SQRT(2DS/H)
D = annual demand/usage rate = 360 x 10 = 3600 rolls/year
S = $1/Order
H = annual $0.4/roll
Q = SQRT(2 x 3600 x 1/0.4) = 134 rolls

b.
ROP = d * LT + Z x SQRT(¿∗σ 2d +σ 2¿ ¿ d 2 ¿

Here, d = demand per unit time (day or week) = 10 rolls/day


LT = lead time in unit time = 3 days
σd = std. dev of demand per unit time = 2 rolls/day
σLT = std. dev of lead time in unit time = 0
Z (96%) = 1.75

ROP = 10 x 3 + 1.75 x SQRT(3 x 22 + 0 x 102 )


= 30 + 6 = 36 rolls
c.
E(n) = E(z) * σdLT
Expected number short per cycle, E(n) = 0.016 X 3.45 = 0.055 roll

E(N) = E(n) * D/Q


Expected number short per year, E(N) = 0.055 X 3600/134 = 1.48 rolls

Here,
E(n) = Expected number short per cycle = ?
E(z) = Standardized number short= E(.96) = 0.016
σdLT = Standard deviation of lead time demand = σd X SQRT(LT)
= 2 SQRT(3) =3.45
E(N) = Expected number short per year

d.
SLannual = 1 – E(N)/D = 1 – E(n)/Q = 1 - E(z) * σdLT/Q
= 1 – 1.48/3600 = 1- 0.0004 = 0.9996 = 99.96%
Formula:
2 DS
EOQ, Q = √ H

Q = SQRT(2DS/H)
Here, D = Demand/Usage rate per year or per month
H = Per unit Holding/carrying cost per year or per month
S = Ordering cost/order

ROP = d x LT + Z x √ ¿∗σ 2d + σ 2¿ ¿ d2
ROP = d * LT + Z x SQRT(¿∗σ 2d +σ 2¿ ¿ d 2 ¿

Here, d = demand per unit time (day or week)


LT = lead time in unit time
σd = std. dev of demand per unit time
σLT = std. dev of lead time in unit time

E(n) = E(z) * σdLT

E(N) = E(n) * D/Q

SLannual = 1 – E(N)/D = 1 – E(n)/Q = 1 - E(z) * σdLT/Q

Here,
E(n) = Expected number short per cycle
E(z) = Standardized number short
σdLT = Standard deviation of lead time demand
E(N) = Expected number short per year
SLannual = Annual service level

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