Class Exercise - Inventory Management

1. A machine shop uses 2500 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away. The following information is known.

a) What is the EOQ?

b) Given the EOQ what would be the average inventory? What would be the annual inventory holding cost?

c) Given the EOQ how many orders would be made each year? What would be the annual order cost?

d) Given the EOQ what is the total annual cost of managing inventory?

e) What is the time between order?

2. Emery Pharmaceutical uses an unstable chemical compound that must be kept in controlled environment. Emery uses 800 pounds per month of the chemical and estimates the holding cost to be 50% of the purchase price and estimates order cost to be $50 per order. The cost schedules of two suppliers are as follows:

a) What is the EOQ for each supplier?

b) What quantity should be ordered, and which supplier should be used?

c) What is the total cost for the most economic order size?

3. Barbara Flynn is in charge of maintaining hospital supplies. During the past year the mean lead time demand for bandages was 60 (normally distributed). Standard Deviation was 7. Ms. Flynn would like to maintain 90% service level.

a) What safety stock do you recommend?

b) What is the appropriate reorder point?