Professional Documents
Culture Documents
Fall 2014
Homework 10 Answers
Q8 (p. 337). At Dot Com, a large retailer of popular books, demand is constant at 32, 000 books
per year. The cost of placing an order to replenish stock is $10, and the annual cost of holding is
$4 per book. Stock is received 5 working days after an order has been placed. No backordering is
allowed. Assume 300 working days a year.
a. What is Dot Coms economic order quantity?
b. What is the optimal number of orders per year?
c. What is the optimal interval (in working days) between orders?
d. What is the demand during the lead time?
e. What is the reorder point?
f. What is the inventory position immediately after an order has been placed?
a.
r r
2DS 2(30, 000)($10)
EOQ = =
H $1
= 775 units
e. Demand and lead time are constraint - no need for safety stock. Reorder point is
= 400 = 400 units
dL
IP = OH + SR BO
= 400 + 775 0
= 1, 175 units
Q10 (p. 338). Sams Cat Hotel operates 52 weeks per year, 6 days per week, and uses a continuous
review inventory system. It purchases kitty litter for $11.70 per bag. The following information is
available about these bags.
Demand: 90 bags/week
Order cost: $54/order
Annual holding cost: 27 percent of cost
Desired cycle-service level: 80 percent (so z = 0.84)
Lead time: 3 weeks
Standard deviation of weekly demand: 15 bags
Current on-hand inventory is 320 bags, with no open orders or backorders.
a. What is the EOQ? What should be the average time between orders (in weeks)?
b. What should R be?
c. An inventory withdrawal of 10 bags was just made. Is it time to reorder?
c. Initial inventory position = OH +SRBO = 320+00 = 320. When 10 bags are withdrawn,
inventory position gets equal to 320 10 = 310 bags. Because inventory position remains
above 292, it is not yet time to place an order.
Q26 (p. 340). Osprey Sports stocks everything a musky fisherman could want in the Great North
Woods. A particular musky lure has been very popular with local fishermen as well as those who buy
lures on the Internet from Osprey Sports. The cost to place orders with the supplier is $30/order;
the demand averages 4 lures per day, with a standard deviation of 1 lure; and the inventory holding
cost is $1.00/lure/year. The lead time from the supplier is 10 days, with a standard deviation of 3
days. It is important to maintain a 97 percent cycle-service level to properly balance service with
inventory holding costs (i.e., z = 1.88). Osprey Sports is open 350 days a year to allow the owners
the opportunity to fish for musses during the prime season. The owners want to use a continuous
review inventory system for this item.
Reorder point