ITSCM 306 Operations Management
Chapter 20 Problem Set: Inventory
Instructions
Must show all work to receive full credit.
Submit your work in Canvas either as a Word file or a clear and legible pdf scan of your hand-written solutions.
Problem 1:
Jill’s Job Shop buys the following Part (X-123) for use in its production system. The parts are needed throughout the entire 52-week year. Data for the part are as follows:
ITEM
X-123
Annual demand
10,000
Holding cost per unit per year
$4
Order cost
$35
Lead time
2 weeks
Safety stock
150 units
Item cost
$10.00
Use the Fixed-Order Quantity Model to find the following:
a) Compute the optimum order quantity (Q).
% Grade
20%
b) What is the reorder point (R) for the item?
20%
c) Find the Total Annual Cost (TC) for the item.
20%
Problem 2:
Benji’s Bar and Restaurant uses 5,000 bottles of an imported wine each year. Weekly demand is 100 bottles (closed two weeks per year). The standard deviation of demand during lead time σL = 52 bottles, and the lead time is three weeks for an order to arrive.
Benji would like to use an inventory system (Fixed – Order Quantity model) that minimizes inventory cost and will provide a 96 percent service probability.
At what inventory level (reorder point) should he place an order?
20%
Problem 3:
UDI Pharmaceuticals orders its antibiotics every two weeks (14 days) when a salesperson visits from one of the Pharmaceutical companies. Tetracycline is one of its most prescribed antibiotics, with average daily demand of 800 capsules. The standard deviation of daily demand was derived from examining prescriptions filled over the past three months and was found to be 250 capsules. It takes 7 days for the order to arrive.
UDI uses Fixed – Time Period Model. UDI would like to satisfy 99 percent of the prescriptions. The salesperson just arrived, and there are currently 2,000 capsules in stock.
How many capsules should be ordered?
% Grade
20%
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