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Chapter 4: 13OQ (page 545)

Dunstreet鈥檚 Department Store would like to develop an inventory ordering policy with a 95 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets. The demand for white percale sheets is 5,000 per year. The store is open 365 days per year. Every two weeks (14 days) inventory is counted and a new order is placed. It takes 10 days for the sheets to be delivered. The standard deviation of demand for the sheets is five per day. There are currently 150 sheets on hand. How many sheets should you order?

Short Answer

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Answer

Inventory policy, as judged on a cumulative basis. This specifies the amount of money that the company will invest in inventory based on a thorough examination of the physical possibilities. Inventory management is done and measured at the product or family group level.

Step by step solution

01

Inventory Policy

The Inventory Policy specifies a procedure for documenting, identifying, and accounting for all College-owned furniture and moveable equipment items (Equipment) with a minimum cost of $200 and a life expectancy of more than two years. The President of the College shall select a Property Manager and charge the Property Manager with maintaining an equipment control system to protect against loss and encourage optimal usage.

The Assistant Vice President for Administrative Services will be the Property Manager. The College should use an adequate property and equipment control system to fulfill the need for precise information on the specific identity of the property or equipment as well as the costs, depreciation, assignment, and location of the equipment.

02

When developing an inventory policy, it is critical to consider the order, amount, rates, and expenses involved. In the above question, the number of sheets that should be sorted is computed as follows:

Given,

Time between orders ( T ) = 14 days

Lead Time ( L ) = 10 days

Demand = 5000 per year

Daily Demand = 5000/365 ( per year )

= 13.70 sheets

Standard Deviation of the demand = 5 days

Current Inventory= 150 sheets

Service Level (P) = 95%

q = d(T+L) + z蟽 T+L - I

z蟽 T+L = 蟽d 鈭� (T+L)

=5 鈭� (14) (10)

= 24.49

From the Z table normal distribution, the value for 95% service level = 1.64

= Daily demand (Time between orders + Lead Time) + % of service Level

= 13.70 (14+10) + 1.64 (24.49) 鈥� 130

=(328.80+ 40.16) - 130

= 368.96-130

=238.9

= 239

Hence, the total no. of the sheet that should be ordered is 239.

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Most popular questions from this chapter

Helter Industries, a company that produces a line of women鈥檚 bathing suits, hires temporaries to help produce its summer product demand. For the current four-month rolling schedule, there are three temps on staff and 12 full-time employees. The temps can be hired when needed and can be used as needed, whereas the full-time employees must be paid whether they are needed or not. Each full-time employee can produce 205 suits, while each part-time employee can produce 165 suits per month. Demand for bathing suits for the next four months is as follows:

May June July August

3,200 2,800 3,100 3,000

Beginning inventory in May is 403 complete (a complete two-piece includes both top and bottom) bathing suits. Bathing suits cost $40 to produce and carrying cost is 24 percent per year.

Develop an aggregate plan that uses the 12 full-time employees each month and a minimum number of temporary employees. Assume that all employees will produce at their full potential each month. Calculate the inventory carrying cost associated with your plan using planned end of month levels.

SY Manufacturers (SYM) is producing T-shirts in three colors: red, blue, and white. The monthly demand for each color is 3,000 units. Each shirt requires 0.5 pounds of raw cotton that is imported from Luft-Geshfet-Textile (LGT) Company in Brazil. The purchasing price per pound is \(2.50 (paid only when the cotton arrives at SYM鈥檚 facilities) and the transportation cost by sea is \)0.20 per pound. The traveling time from LGT鈥檚 facility in Brazil to the SYM facility in the United States is two weeks. The cost of placing a cotton order, by SYM, is $100 and the annual interest rate that SYM is facing is 20 percent.

a. What is the optimal order quantity of cotton?

b. How frequently should the company order cotton?

c. Assuming that the first order is needed on April 1, when should SYM place the order?

d. How many orders will SYM place during the next year?

e. What is the resulting annual holding cost?

f. What does the resulting annual ordering cost?

g. If the annual interest cost is only 5 percent, how will it affect the annual number of orders, the optimal batch size, and the average inventory? (You are not expected to provide a numerical answer to this question. Just describe the direction of the change and explain your answer.)

A distributor of large appliances needs to determine the order quantities and reorder points for the various products it carries. The following data refer to a specific refrigerator in its product line: Cost to place an order Holding cost Cost of refrigerator Annual demand Standard deviation of demand during lead time \(100 20 percent of product cost per year \)500 every 500 refrigerators 10 refrigerators 7 days Consider an even daily demand and a 365-day year.

a. What is the economic order quantity?

b. If the distributor wants a 97 percent service probability, what reorder point, R, should be used?

The local supermarket buys lettuce each day to ensure really fresh produce. Each morning any lettuce that is left from the previous day is sold to a dealer that resells it to farmers who use it to feed their animals. This week the supermarket can buy fresh lettuce for \(4.00 a box. The lettuce is sold for \)10.00 a box and the dealer that sells old lettuce is willing to pay $1.50 a box. Past history says that tomorrow鈥檚 demand for lettuce averages 250 boxes with a standard deviation of 34 boxes. How many boxes of lettuce should the supermarket purchase tomorrow?

Shoney Video Concepts produces a line of video streaming servers that are linked to personal computers for storing movies. These devices have very fast access and a large storage capacity. Shoney is trying to determine a production plan for the next 12 months. The main criterion for this plan is that the employment level is to be held constant over the period. Shoney is continuing in its R&D efforts to develop new applications and prefers not to cause any adverse feelings in the local workforce. For the same reason, all employees should put in full workweeks, even if that is not the lowest-cost alternative. The forecast for the next 12 months is

Month

Forecast demand

Month

Forecast demand

January

600

July

200

February

800

August

200

March

900

September

300

April

600

October

700

May

400

November

800

June

300

December

900

The manufacturing cost is \(200 per set, equally divided between materials and labor. Inventory storage cost is \)5 per month. A shortage of sets results in lost sales and is estimated to cost an overall $20 per unit short.

The inventory on hand at the beginning of the planning period is 200 units. Ten labor hours are required per DVD player. The workday is eight hours. Develop an aggregate production schedule for the year using a constant workforce. For simplicity, assume 22 working days each month except July, when the plant closes down for three weeks鈥� vacation (leaving seven working days). Assume that total production capacity is greater than or equal to total demand.
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