What level of safety stock should they hold

Assignment Help Operation Management

Reference no: EM133638185

Homework: ABC Analysis, EOQ, Reorder Point and Safety Stock

Step I: Conduct an ABC Analysis

Use Excel OM and the chart to conduct an ABC analysis to determine which category each of the parts falls into. Provide analysis and interpretation of the results.

In the Excel OM software, the default Percent of dollar volume for A items is 75%, however, it has been determined by your boss that he would like to see the data for the A items set at 80%.

Step II: Calculate EOQ and Reorder Paint

Use Excel OM to calculate the EOQ and the reorder point for part number 1359 (check reorder point and graph when setting up the software).

The lead time to reorder parts is 30 days. The set up/ordering cost is $1,000 per order, and the holding cost is fixed at $125 per month (hint: be careful here). The factory runs 365 days per year, and the company wants to maintain a safety stock of 50.

Provide analysis and interpretation of the results.

Step III: Calculate Safety Stock

In Step II, you were given the safety stock of 50; however, this can be calculated for a more accurate number. Assume that the average daily demand for part number 1359 is 30 with a standard deviation of 2 parts per day. If the company wants to make sure that they do not stockout more than 5% of the time, then what level of safety stock should they hold?

As part of your analysis of these results, how does the safety stock calculated here compare to the safety stock requirement in step II?

To calculate the safety stock, use Excel OM and the Safety Stock (Normal Distribution) spreadsheet. Input your data into column H of the model titled Model: Daily Demand and its standard deviation given.

Reference no: EM133638185

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