Question 1
You work at Fineze, a retailer that sells wine of various quality and prices. Fineze orders two types of wine, Xylo and Yolo, from a France wine distributor. The cost of placing an order is $533 and the annual holding cost rate of Fineze is 14.0%. The lead time is 2 weeks and Fineze only pays for the goods when the shipment arrives at their distribution center. Assume that there are 48 weeks in a year.
The annual demand for the less popular wine variety, Xylo, is very stable at 5388 bottles. The costs of Xylo is $ 35 per bottle.
1.a) What is the optimal order quantity of Xylo?
1.b) How many weeks are there between each optimal order quantity of Xylo?
Question 2
Based on the exceptionally stable demand, you are assuming that demand is deterministic in your model. What are the annual pipeline inventory, purchase, ordering, average cycle stock costs and average safety stock costs to Fineze for this policy? Round your answer to the closest dollar.
2.a) Annual pipeline inventory cost
2.b) Annual purchase cost
2.c) Annual ordering cost
2.d) Annual average cycle stock costs
2.e) Annual average safety stock costs
Question 3
The annual demand for the more popular wine variety, Yolo, is also very stable at 36272 bottles. The costs of Yolo is $ 71 per bottle. The cost of placing an order, the annual holding cost rate and the lead time are the same as Xylo, and, again, Fineze only pays for the goods when the shipment arrives at their distribution center.
3.a) What is the optimal order quantity of Yolo?
3.b) How many weeks are there between each optimal order quantity of Yolo?
Question 4
Based on the exceptionally stable demand, you are assuming that demand is deterministic in your model. What are the annual pipeline inventory, purchase, ordering, average cycle stock costs and average safety stock costs to Fineze for this policy? Round your answer to the closest dollar.
4.a) Annual pipeline inventory cost
4.b) Annual purchase cost
4.c) Annual ordering cost
4.d) Annual average cycle stock costs
4.e) Annual average safety stock costs
Question 5
Your manager told you that the demand forecast is usually wrong. Based on his experience, the maximum absolute percent error between the forecast and the true demand is 51.0%. What is the maximum "additional" cost for using the economic ordering quantity for the forecast of Yolo (that you have determined in Question 3) instead of the economic order quantity for the true demand of Yolo?
Question 6
We will NOT consider the uncertainty in demand in Question 5 for the rest of this question.
Yolo is packed in a special bottle that requires very careful handling. If it is a large delivery, a few other employees are needed to help unpack. You proposed to your manager that there is an extra handling cost of $0.33 for each bottle of Yolo if the order for Yolo is larger than 440 bottles. You can consider as if each bottle costs $0.33 more if the order for Yolo is larger than 440.
What is the order size that will minimize total costs considering the extra handling costs?
Question 7
The manager does not agree with you that there is an extra handling cost, so let's ignore your proposal in Question 6 for the rest of this question.
Currently, you order the wine separately based on the intervals indicated in Question 1 and 3. The manager told you to streamline the ordering process such that Xylo and Yolo are ordered together in an interval of power of two (i.e., every 1, 2, 4, 8, ... weeks). This makes inventory management more straightforward and saves ordering costs by batching multiple SKUs into one order. If two wines were ordered from the distributor at the same time, they would charge the cost of only one order. In other words, the ordering cost of each of the SKU is halved.
Based on the manager's instructions, what is the best interval to order the wines? Answer in number of weeks.
Question 8
What is the annual savings for ordering in the interval indicated in Question 7? This is the difference between the sum of the costs in Question 2 and 4 and the total cost under this new ordering policy.