Reference no: EM133036361

The economic rice stall in FoodClique uses disposable containers for takeaways. The stall operates throughout the year except for 1 week each for CNY and Christmas and operates half a day on Sundays. It employs a reorder level to decide when to place the order for containers to the supplier. The containers come in a packet of 100 and each packet costs $12.75. The number of takeaways varies over the days and it was found that the average daily demand is 7.5 packets and the standard deviation of daily demand is 4 packets. It was estimated that the annual holding cost is 25% of the unit cost. A transportation cost of $5.80 is incurred whenever an order is placed, and it takes 4 workweeks to receive the items. Inventory records show that there are 220 packets of containers in stock currently and no orders are pending from the supplier.

(a) The new manager of the stall decides to ignore the demand variability and places the order to the supplier based on the average demand. He derived EOQ as 94 packets and ROL as 195 packets. How does ignoring the demand variability change the order quantity? The stall used 10 packets of containers last Sunday (10th October 2021). Is it time to place the order on the 11th?

(b) The manager later realised that ignoring the uncertainty in demand might be a mistake and there could be occasions when the stall could not sell the food because of a lack of containers. The manager now decides to include demand uncertainty into the ordering policy and wants to provide a service level of 95%. Analyse what should be the best ordering policy for the stall. Decide whether an order should be placed now based on the new policy. Do you need to make any assumptions for this analysis?

(c) The manager is thinking of moving to a periodic review system. How do the ordering policy and safety inventory change if inventory is reviewed every Monday morning? How many packets should be ordered next Monday (11th October 2021), if any?