1. List how a reduction in lead time can help a supply chain reduce its inventory buffer without hurting customer service?
2. Why are Internet Retailers often able to provide a variety of different products for sale with less inventory than traditional 'bricks and mortar' retail stores?
3. Explain the concept of replacing inventory by information within an organization.
4. Why should a customer be concerned about transit inventory cost, if they pay for the inventory only when the merchandise arrives at their premises?
5. Fine Garments Case:

The Fine Garments Company sells fashion clothing. The forecasted annual demand for its premium leather jacket is 1200. The order processing cost per da is $25, and the inventory holding cost is $50/item/year.

The company wants to use a reorder point system. It has the order quantity set at 35. To allow for uncertainties in delivery and in customer demand it wishes to hold 4 weeks of demand as safety stock. What should its reorder point be if the delivery lead time is 2 weeks?

1. Hamilton Fabricators Case: (3 marks)

Hamilton Fabricators at Te Rapa orders steel plates from the Te Akau steel plant on a regular basis. An investigation revealed the following details: annual demand = 5,000 tons, cost of steel = $2,000/ton, current order size = 500 tons transported by TranzRail, TranzRail transport cost = $100/ton, safety inventory carried = 50% of demand during replenishment lead time, Inventory holding cost = 25% of purchase price per year, replenishment lead time = 5 days.

Calculate

• the transit inventory cost,
• the safety inventory cost, and
• the transportation cost on an annual basis.

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