192 CHAPTER 12 IN V E N T O R Y MA N A G E M E N T
12.29
(c)
1500 150
Order cost $2,250.00
100
DS
Q
= = =
Holding Cost
Ordering Cost
60 2
(c) Reorder point = demand during lead time
600 units 10 days 24 units
= =
2
6,000 20 478 0.15 7 (7 6,000)
DS QH PD
Q
= + +
194 CHAPTER 12 INVE N TO R Y MA N A G E M E N T
12.43
0
12.44
Incremental Costs
Safety Stock
Carrying Cost
Stockout Cost
Total Cost
0
0
70(100 0.4 + 200 0.2) = 5,600
$5,600
100
100 15 = 1,500
(100 0.2) (70) = 1,400
$2,900
200
200 15 = 3,000
0
$3,000
The safety stock that minimizes total incremental cost is 100 kilos. The reorder point then is 200 kilos +
100 kilos, or 300 kilos.
12.45
12.46 Only demand is variable in this problem, so Equation
(b) ROP = (Average daily demand Lead time in days)
(12-16) is used.
Z = 1.88 for 97% service level
12.48 (a) Both lead time and demand are variables, so Equation
(12-17) applies, in weeks. Z = 1.28 for 90% service.
ROP = (200 6) + 1.28
dLT
So ROP = (200 × 6) + 1.65(405) 1,200 + 668 = 1,868 cigars.
out. Hence, the ROP increases from 1,718 to 1,868 when the
H = $3/lb/year S = $16/order
(d) LT = 4 days with = 15 Stockout risk = 1%
ROP = 369.99 where ROP = (d)(LT) + SS
Incremental Costs
Safety
Additional
Total
CHAPTER 12 IN V E N TO RY MA N A G E M E N T 195
12.50* Z = 1.28 for 90% service level
12.51
= $9 – $5 = $4
= $5 – $2 = $3
s
o
C
C
C
fluctuation in demand is dealt with by the safety stock based on
*2 (Total demand) (Ordering cost)
Holding cost
Q
=
CHAPTER 12 IN V E N TO RY MA N A G E M E N T 197
2
1
INVENTORY CONTROL AT WHEELED
COACH
The 7-minute video, filmed specifically for this text, is available
from Pearson and designed to supplement this case. It is available
in MyOMLab.
1. Wheeled Coach implements ABC analysis by identifying the
dium value that represent 30% of the items and 15%–25% of the
2. The inventory control manager at Wheeled Coach would
want to not only have ABC analysis but implement tight physical
3. The inventory control manager would implement these changes
through effective leadership, hiring and training of cycle counters,
Setup cost, S
Holding cost %, I
also want to be assured that all concerned employees understand the
importance of accurate inventory records, tight inventory control,
and locked stockrooms. Management would have to exhibit the
ADDITIONAL CASE STUDIES
(AVAILABLE IN MYOMLAB)
SOUTHWESTERN UNIVERSITY: F
Key Points: This case lets the student look at a simple inventory
problem that can be discussed at several levels. By using a stand-
1. Because this is a one-year demand, demand violates the EOQ
order from First Printing. The simple theoretical EOQ solution is
1
3
3
orders of 60,000 each for a setup cost of $1,000, and the total
Data
Demand rate, D
200,000
Minimum quantity
10,000
30,000
60,000
250,000
Unit price, P
1.62
1.53
1.44
1.26
Unit costs
Total cost
Range 1
Range 2
Range 3
Range 4
Q* (Square root form)
12,171.61
12,524.48
12,909.94
13,801.31
Order quantity
12,171.61
30,000.00
60,000.00
250,000.00
Holding cost
$4,929.50
$11,475.00
$21,600.00
$78,750.00
Setup cost
$4,929.50
$2,000.00
$1,000.00
$240.00
198 CHAPTER 12 INVE N TO R Y MA N A G E M E N T
Actual Solution: The demand is not constant. Maddux needs
200,000 programs this year. The programs will be different next
year when he will also have a new forecast demand, depending on
cost of $308,800.
Theoretical unit cost = ($1.44 200,000) = $288,000
Theoretical ordering cost = (
1
3
3
$300) = $1,000
Maddux needs 40,000 inserts for each game and must order them
on a per game basis. Inserts for each game are unique, as statistics
and lineup for each team changes as the season progresses. If
place to the necessity of ordering 40,000 inserts for each game.
Therefore, Maddux should order 40,000 inserts from First
Ordering cost = 5 orders must be placed @ 40,000 inserts;
5 setups cost $1,500 @ $300 each.
CHAPTER 12 IN V E N TO RY MA N A G E M E N T 199
2
LAPLACE POWER AND LIGHT
The optimal order quantity is given by:
2 2(499.5) 50
*41.4
DS
QH
==
Q* = 34.74 thousand feet
The reorder point is given by:
499.5 (60)
260
ROP = 115.27 thousand feet
=
Currently, the company is committed to take 1/12 of its annual
= = =