1. What is the importance of holding inventory in an organization? Can an organization gain a a competitive advantage thorough inventory management? Explain your answer.
2. Saga ltd. produces electronic toys for children between the ages of 7-10 years old. The toys use a processor that is imported from Japan. Annual demand for the processor is 12,500. The holding cost per processor per year is $2. Ordering cost per order is $400. Lead time is 7 days and the number of working days in the year is 250.
a. What is the economic order quantity?
b. What is the optimal number of orders per year?
c. Calculate the annual holding cost if the economic order quantity is used.
d. What is the optimal number of days between any two orders?
e. What is the reorder point? f. Given the EOQ, what is the total annual inventory cost
3. Rocky Mountain Tire Centre sells 20,000 tires of a particular type per year. The ordering cost for each order is $40, and the holding cost is 20% of the purchase price of the tires per year. The purchase price is $20. per tire if fewer than 500 tires are ordered, $18. Per tire if more than 500 but fewer than 1,000 tires are ordered and $17. per tire if 1,000 or more tires are ordered. How many tires should Rocky Mountain order each time it places an order?
Quantity Unit Price
1-499 $20.
500-999 $18.
1000 & over $17
4. Based on available information, lead time demand for CD-ROM drives averages 50 units (normally distributed), with a standard deviation of 5 drives. Management wants a 97% service level.
1. What value of Z should be applied?
2. How many drives should be carried as safety stock?
3. What is the appropriate reorder point?