Chapter 12 (SCM 488)

1. On average, inventory is _____% of total invested capital& _____% of cycle time involves moving through a factory.

2. What are 4 reasons companies carry inventory?

3. Your company decides to use ABC analysis to classify inventory into groups ("A", "B", "C") of decreasing importance. Which of the items would be grouped into A, B and C?

4. As manager of the warehouse for a small manufacturing company, you have 3 items in inventory. Rather than taking an annual shutdown to count every item in the warehouse, at 1 time, you decide to follow a daily count method of inventory control. What should be the daily counts of the A, C and C classified items? What are 2 advantages using daily vs. an annual count?

5. At higher production batch quantities, set up cost per piece____________. The more pieces we make our inventory holding costs__________________as we store parts waiting for customer orders to consume them from inventory.
Inventory holding costs average __________% of total inventory costs.

6. As the production manager, you are told annual demand for the product you are making averages 20,000 pieces. The cost to set up the production equipment to make a batch is $15. The holding cost for your product is $0.75 per piece. Based on EOQ, how many pieces should be made per batch?

Given annual demand of 20,000 pieces and you calculated pieces per batch, what is the set up cost per year? What is your expected annual holding cost for this production batch size? Assuming set up and holding are the only inventory costs, what is the total inventory cost?

7. At your company, it is often the case when you buy items for inventory your suppliers offer a quantity discount. One supplier is offering the following offer.

In what batch size should you order? Keep in mind when orders are made tooling cost to set up their line is $300. Your customer order demand is 8,000/yr. Holding cost per item as a % of per piece price is 30%. At this batch size, considering ordering, holding and product costs, how much money do you have tied up in inventory?

8. You are managing the fruit dept. in a grocery store. Demand for oranges is 52000 per year. The store is open works 250 days/year. The lead time for purchasing oranges is 3 days. The reorder point (ROP) is?

9. You are managing the fruit dept. in a new store. In this new location demand for oranges is not constant and suppliers have inconsistent lead times. The store has experienced fluctuating demand for frames during the lead time period of

You decide to include a safety stock in your ROP calculation to limit the probability of a stockout. The ROP is 70. Orders are placed 10 times per year. Holding cost per orange is $0.5. If the cost of lost sales because there are no oranges is $.5/orange, the stock out cost of a 70 frame ROP is?

You are managing a warehouse. You find that demand for your parts going out is for 30 units with a demand standard deviation of (σ_d) of 2. Lead time to order new units is 2 days. You want 90% probability (z=1.28) of meeting demand with inventory? What should be your reorder point?

Your manager tells you it can be the case suppliers have fluctuating lead time even though you have constant demand. The demand for your warehoused items is 10. Average lead time is 4 days with a standard deviation of (σ_L) 0.5. You want 95% probability (z=1.98) of meeting demand with inventory. What should the reorder point be?