Question 1:

Current weekly demand forecast for an item follows a normal distribution with a mean of 100 units, with a standard deviation of 70 items. It takes one week to receive the order. The company's policy is to provide 95% of the demand from the inventory on hand; they hold a safety stock of 42 units to provide this policy. (Use the approximations for service and backorder levels)

a) Find expected backorder level and the ordering quantity.

b) To preserve the same service level, what order quantity would allow the company to carry no safety stock?

c) Calculate the exact Backorder level

e) Using the exact levels, compare the two strategies' average inventory levels, i.e carrying safety stock vs. not carrying a safety stock.

Question 2:

ABC company produces a line of internal Winchester disks for PCs. The drives uses a 3.5 inch platter from an outside supplier. Demand data and sales forecasts indicates that weekly demand for the platters seems to be closely approximated by a normal distribution with mean 24 and standard deviation of 17. The platters require a three week lead time for receipt. ABC company has been using a 40 percent annual interest charge to compute the holding costs. The platters cost &18.80 each. Order cost is $75. The cycle stock is identified using EOQ policy.

a) Purchasing manger is currently reordering whenever the inventory on hand is equal to twice as much as the safety stock level. Calculate the reorder point and achieved fill rate in this policy.

b) Comment on the appropriateness of the method for setting reorder point in a). How is the product availability affected by this rule.

c) ABC company's president decides not to carry any safety stock as a new policy. How should the purchasing manager readjust the ordering policy in order to achieve the same fill rate achieved by the policy in a).

d) Compare the average inventory levels for both cases.