Reference no: EM132667993

Inventory Management Problems

Question 1:

Demand for carpet at a carpet wholesaler stays constant at 10,000 sq. ft. per month. The wholesaler incurs a fixed transportation cost of $100 each time an order is placed and delivered. The carpet costs $3 per sq. ft. and the wholesaler has an annual holding cost rate (per sq. ft.) that is 20% of the unit purchase cost.

1. What should the optimal order size (or EOQ) be? Note that the carpet can be ordered in any size, so there is no need to round the EOQ to an integer number. Please keep two digits after the decimal point.

2. What is the time between orders? Please give your answer in days and round it to the nearest integer number of days.

3. What is the average cycle stock? Please keep two digits after the decimal point.

4. What is the annual holding cost? Please keep two digits after the decimal point.

Question 2:

Weekly demand for Motorola cell phones at a Best Buy store is normally distributed, with a mean of 300 and a standard deviation of 200. Motorola takes two weeks to supply a Best Buy order.

1. Best Buy is targeting at a CSL of 95 percent and monitors its inventory continuously. How much safety stock of cell phones should Best Buy carry? What should its reorder point (R) be? Please round your answers to the nearest integer.

2. The store manager has decided to follow a periodic review policy to manage inventory of cell phones. She plans to order every three weeks. Given a desired CSL of 95 percent, how much safety stock should the store carry? What should it target order-up-to level (T) be? Please round your answers to the nearest integer.

3. Comparing the safety stocks in parts a) and b), which one is higher? Please explain intuitively why this is the case.