Exercise 12-11:
Inputs
Average demand per unit time, D = 500
Lead time from Chinese supplier, L = 9
SD of demand per unit time, σD = 300
SD of lead time for Chinese supplier, sL6
Holding cost, h = 25%
Target cycle service level 0.99
Distribution of Demand during Lead Time
Mean demand during lead time, DL = 4500
SD of demand during lead time, σL = 3,132
Safety Inventory and Costs with Chinese Supplier
Safety inventory, ss = 7,286
Reorder point, ROP = 11,786
Cost per motor 200
Annual holding cost 364,317
Annual cost of motors 5,200,000
Total annual cost with Chinese supplier 5,564,317
Safety Inventory and Cost with Local Supplier
Lead time of local supplier 1
Cost per motor from local supplier 210
Required safety inventory 698
Annual holding cost 36,640
Annual cost of motors from local supplier 5,460,000
Annual cost with local supplier 5,496,640