Subject: Warehouse management and Inventory control_20BLGV01

Team 4
No. Full name Student ID

1 Vũ Nguyễn Yến Nhi 2000005135

2 Phạm Thị Tường Vân 2000005741

3 Nguyễn Trương Phúc Hậu 2000001348
4 Nguyễn Phương Phi Trường 2000003698

ASSIGNMENT 7 – CHAPTER 7
Discuss question
11.1 For a particular SKU, the leaad time is 4 weeks, the average demand is 150 units per
week, and safety stock is 100 units. What is the average inventory if 1600 units are ordered at
one time ? What is order point ?
Average inventory = Q/2 + SS = 1600/2 + 100 = 900 units
Order point = DDLT + SS = 4*150 + 100 = 700 units

11.2 For a particular SKU, the lead time is 6 weeks, the average demand is 90 units a week,
and safety stock is 200 units. What is the average inventory if 10 weeks’ sup- ply is ordered at
one time? What is the order point?
Units ordered (Q) = 90 *10 = 900
Average inventory = Q/2 + SS = 900/2 + 200 = 650
Order point = DDLT + SS = 6*90+ 200= 740 units

11.3. Given the following data, calculate the average x of the distribution and the standard
deviation (σ).
 Period A ctual Demand Deviation Deviation Squared

1 500 0 0

2 600 -100 10000

3 425 75 5625

4 450 50 2500

5 600 -100 10000

6 575 -75 5625

7 375 125 15625

8 475 25 625

9 525 -25 625

10 475 25 625

Total 500 0 51250 5125

Sigma 71.5891053

11.4. Given the following data, calculate the average demand and the standard deviation.
Period Actual Demand Deviation Deviation Squared
1 1700 -300 90000
2 2100 100 10000
3 1900 -100 10000
4 2200 200 40000
5 2000 0 0
6 1800 -200 40000
7 2100 100 10000
8 2300 300 90000
9 2100 100 10000
10 1800 -200 40000
Total 2000 0 340000

Average of the squares of the deviation = 340000/10= 34000 units

Sigma = √ 34000 = 184.4 units

11.5 If sigma is 130 units, and the demand during the lead time is 250 units, calculate the
safety stock and order point for:
a. A 50% service level  Safety factor = 0
Safety stock = σ x Safety Factor = 130 x 0 = 0 units
Order point = 250 + 0 = 250
b. An 85% service level  Safety factor = 1.04
Safety stock = σ x Safety Factor = 130 x 1.04 = 135.2 units
Order point = 250 + 135.2 = 385.2 units

11.6. The standard deviation of demand during the lead time is 100 units.
a. Calculate the safety stock required for the following service levels: 75%, 80%,
85%, 90%, 95%, and 99.99%.
service level is 75%  safety factor = 0.67  safety stock = 0.67 x 100 = 67 units
service level is 80%  safety factor = 0.84  safety stock = 0.84 x 100 =84 units
service level is 85%  safety factor = 1.04  safety stock = 1.04 x 100 = 104 units
service level is 90%  safety factor = 1.28  safety stock = 1.28 x 100 = 128 units
service level is 95%  safety factor = 1.65  safety stock = 1.65 x 100 = 165 units
service level is 99.99%  safety factor = 4  safety stock = 4 x 100 = 400 units

b. Calculate the change in safety stock required to increase the service levels from 75
to 80%, 80 to 85%, 85 to 90%, 90 to 95%, and 95 to 99.99%. What conclusion do
you reach?
75 to 80% = 84 – 67 = 17 units
80 to 85% = 104 – 84 = 20 units
85 to 90% =128 – 104 = 24 units
90 to 95% = 165 – 128 = 37 units
95 to 99.99%. = 400 – 165 = 235 units

11.7. For an SKU, the standard deviation of demand during the lead time is 150 units, the
annual demand is 10,000 units, and the order quantity is 750 units. Management says it will
tolerate only one stockout per year. What safety stock should be carried? What is the average
inventory? If the lead time is 2 weeks, what is the order point?
10.000
No of orders per year = = 13,3
750
1
Stock out = = 0,07 = 7%
13,3
 Service level = 100% - 7% = 93%

 Safety factor = 1,49

 Safety stock = 150 x 1,49 = 223 units

750
Average inventory = + 223 = 598 units
2
 Order point = (150 x 2) + 223 = 523 units
11.8. A company stocks an SKU with a weekly demand of 225 units and a lead time of 3
weeks. Management will tolerate one stockout per year. If sigma for the lead time is 175 and
the order quantity is 800 units, what is the safety stock, the average inventory, and the order
point?
Annual Demand = 225 x 52 weeks = 11,700 units
No of orders per year= 11700/800 = 14,625 orders
 Service level = (14.625-1)/14.625 = 93.16 %

 Safety factor = 1.49

 Safety stock = 1.49 * 175 = 261 units

800
Average inventory = + 261 = 661 units
2
Order point = 225 x 3 + 261 = 936 units

11.9. A company stocks an SKU with a weekly demand of 600 units and a lead time of 4
weeks. Management will tolerate one stockout per year. If sigma for the lead time is 100 and
the order quantity is 2500 units, what is the safety stock, the average inventory, and the order
point?
Annual Demand = 600 x 52 weeks = 31200 units
No of orders per year= 31200/2500 = 12.48 orders
 Service level = (12.48 -1)/12.48 = 91.98 %

 Safety factor = 1.41

 Safety stock = 1.41 * 100 = 141 units

2500
Average inventory = + 141 = 1391 units
2
Order point = 600 x 4 + 141 = 2541 units

11.10. If the standard deviation is calculated from weekly demand data at 100 units, what is
the equivalent sigma for a 3-week lead time? Answer. 173 units

Sigma for LTI = 100 x

√ 3
1
= 173 units

11.11. If the safety stock for an item is 200 units and the lead time is 3 weeks, what should the
safety stock become if the lead time is extended to 6 weeks?
SS ( new ) =200∗
√ 6
3
=282,84 ≈ 283 units

11.12. If the weekly standard deviation is 140 units, what is it if the lead time is 3 weeks?

Sigma=140∗
√ 3
1
=242 units

11.13. The safety stock on an SKU is set at 220 units. The supplier says it can reduce the lead
time from 8 to 6 weeks. What should be the new safety stock?

SS ( new ) =220∗
√ 6
8
=190,5 ≈ 191units

11.14. The safety stock on an SKU is set at 500 units. The supplier says it has to increase the
lead time from 4 to 5 weeks. What should be the new safety stock?

SS ( new ) =500∗
√ 4
5
=559units

11.15. Management has stated that it will tolerate one stockout per year. The forecast of
annual demand for a particular SKU is 100,000 units, and it is ordered in quantities of 10,000
units. The lead time is 2 weeks. Sales history for the past 10 weeks follows. Calculate:
a. Sigma for the demand history time interval.
b. Sigma for the lead time interval.
c. The service level.
d. The safety stock required for this service level.
e. The order point.

Sigma = √ 120000=346
Sigma = 346*
√ 2 = 155
10
Numper of orders years = 100,000/10,000 = 10

Since one stockout per year is tolerable

Service level = 10-1/10 = 0,9 => safety Factor= 1,28

Safety stock = safety factor * sigma = 1,28 *346= 443,40 units

 DDLT = 100,000*2/52 = 3,846 units
Orderpoint = DDLT + SS = 3,846+ 443,40 = 4289 units

Week Actual Demand Deviation Deviation Squared

1 2100 -100 10000

2 1700 300 90000

3 2600 -600 360000

4 1400 600 360000

5 1800 200 40000

6 2300 -300 90000

7 2200 -200 40000

8 1600 400 160000

9 2100 -100 10000

10 2200 -200 40000

Total 2000 1200000

11.16. If in problem 11.15, management said that it is considering increasing the service level
to one stockout every 2 years, what would the new safety stock be? If the cost of carrying
inventory on this item is $10 per unit per year, what is the cost of increasing the inventory
from one stockout per year to one every 2 years?
N = 10
Stock out = 2 year
Service level = 10-2/10 = 80 => safety factor = 0,84
New safety stock = safety factor * sigma = 0,84 * 346 = 290 units

11.17. The annual demand for an item is 10,000 units, the order quantity is 250, and the
service level is 90%. Calculate the probable number of stockouts per year.
A−Q(number of stockout per year )
Service level = ∗100
A
10000−250∗X
90% =  X = 4 stockouts per year
10000
11.18. A company that manufactures stoves has one plant and two distribution centers (DCs).
Given the following information for the two DCs, calculate the gross requirements, projected
available, and planned order releases for the two DCs and the gross requirements, projected
available, and planned order releases for the central warehouse.
Gross Requirements 120 110 115 100 105 LT 1
In Transit 200 200 Q 200
Project Available 50 130 20 105 205 100
Planned oreder receipts 200
Planned Order Release 200

Central supply
Week 1 2 3 4 5
Gross Requirements 100 200 100 0 0 LT 2
Scheduled Receipts Q 500
Project Available 400 300 100 0
Planned Order Release

11.19. A company that manufactures snow shovels has one plant and two distribution centers
(DCs). Given the following information for the two DCs, calculate the gross requirements,
projected available, and planned order releases for the two DCs and the gross requirements,
projected available, and planned order releases for the central warehouse.
Center A Center B
Transit time 2 Transit time 2
Oreder quantity 500 Oreder quantity 200
week 1 2 3 4 5 week 1 2 3 4 5
gross requirement 300 200 150 275 300 gross requirement 50 75 100 125 150
in transit 500 in transit
projected available 200 400 200 50 275 475 projected available 150 100 25 125 0 50

planned order planned order

receipts 500 500 receipts 200 200
planned order planned order
release 500 500 release 200 200

Center supply
Transit time 1
Oreder quantity 600
week 1 2 3 4 5
gross requirement 200 500 700 0 0
schedule receipts
projected available 400 200 300 200
planned order
receipts 600 600
planned order
release 600 600
11.20. A firm orders a number of items from a regional warehouse every 2 weeks. Delivery
takes 1 week. Average demand is 200 units per week, and safety stock is held at 2 weeks’
supply.
a. Calculate the target level.
b. If 600 units are on hand, how many should be ordered?
D = demand per unit of time = 200

L = lead-time duration = 1 week

R = review period duration = 2 weeks

SS = safety stock = 2 week’s supply = 2 * 200 = 400 units

I = inventory on hand = 600 units

 Target level T = D x (R + L) + SS = 200 x (2 + 1) + 450 = 1000 units

b. If 600 units are on hand, how many should be ordered?

 Order quantity Q = T - I = 1000 - 600 = 400 units

11.21. A regional warehouse orders items once a week from a central warehouse. The truck
arrives 3 days after the order is placed. The warehouse operates 5 days a week. For a
particular brand and size of chicken soup, the demand is fairly steady at 20 cases per day.
Safety stock is set at 2 days’ supply.
a. What is the target level?
D = 20 units per day SS = 20 x 2 = 40 units L = 3 days R = 5 days
T = D (R + L) + SS = 20 x (5 + 3) + 40 = 200 units
b. If the quantity on hand is 90 cases, how many should be ordered?
Q = T – I = 200 – 90 = 110 units

11.22. A small hardware store uses a periodic review system to control inventory and
calculate order quantities. Inventory is reviewed every 2 weeks and there is a 1-week lead
time for delivery. Safety stock is set at 1 week’s supply. The following table shows the
products and the current on-hand inventory. Calculate the target level and order quantity for
each of the items. Use 50 weeks per year for your calculations.
 Item Annual Demand Target Level On-Hand Order Quantity
Nut - 6 mm 500 2000 22 1978
Nut - 8 mm 750 3000 54 2946
Bolt - 6 mm 200 800 0 800
Bolt - 8 mm 100 400 6 394
Screw #8 - 30 mm 250 1000 12 988
Screw #8 - 40 mm 200 800 8 792
Washer - 8 mm 380 1520 20 1500
Washer - 10 mm 100 400 5 395
Pin - Split 400 1600 40 1560

11.23. Using the data from problem 11.22, calculate the order quantities that would result if
the store switched to a weekly review of inventory. What effect does more frequent ordering
have on order quantities?

Item Annual Demand Target Level On-Hand Order Quantity

Nut - 6 mm 500 1500 22 1478

Nut - 8 mm 750 2250 54 2196
Bolt - 6 mm 200 600 0 600
Bolt - 8 mm 100 300 6 294
Screw #8 - 30 mm 250 750 12 738
Screw #8 - 40 mm 200 600 8 592
Washer - 8 mm 380 1140 20 1120
Washer - 10 mm 100 300 5 295
Pin - Split 400 1200 40 1160