Do 3 21 AaBhCeDdFe AaBbCcDdEe E Heading 1 Normal The purpose of this exercise is to discuss the situation facing a business owner and help him determine an inventory ordering policy from the information given. Richard Haslett owns three bars in Santa Cruz located on the boardwalk. In September 2016, Richard hired Kelly Warton as the Business Manager to take care of accounting and inventory. Her salary is $40,000, which works out to about $20 per hour. After her first six months at work Richard is dissatisfied with her performance. Kelly seems to be spending so much time taking care of the inventory that the books are always late. Although Kelly has been using standard ordering policies (set in 2012) she claims that very often she finds herself dealing with rush orders to avoid stock outs. In most cases rush orders means compromising on quality and settling for lesser-known brands. This results in a number of dissatisfied customers, and it also meant that Richard still had to take care of many accounting tasks. He had thought with Kelly taking care of running the bars he would have more time for his family and fishing. Before making a decision on whether to retain Kelly, Richard thought he should get another opinion on the inventory problem. Cindy Haslett, Richard's niece, has just finished a course in Operations Management. Richard offered to sponsor Cindy's summer vacation in Santa Cruz if she would help to study the ordering policies for the bars. Realizing that the inventory policies should be based on demand, Cindy first studied the demand from January 2016 and forecasted the annual demands for the major items based on 52 weeks per year. One of these is listed on the next page. Discussions with Kelly revealed that orders were placed for each item when it reached its reorder point (what system is this? Por 07). She uses the order quantities and reorder points estimated by the previous stock manager. Kelly estimates that orders must be placed three weeks in advance in order to purchase the correct brand. She spends about 30 minutes checking with suppliers and placing an order each time an order is placed. A study of the inventory records indicate that annually about 3 % of the material are discarded due to spillage and broken bottles. Richard Haslett pays 9 % annual interest on the debts for his business. Product Weekly Demand Unit Cost (S) Current Order Current Quantity Reorder Point 30 Vodka 5 2.8 150 80 1. What is: the cost of placing an order (S)? b. the holding cost per unit per year for Vodka (H)? c. What is the annual demand (D) for Vodka? d. What is the lead time for Vodka? Focus ces Manny AAB A No Evev AaBhCeDdre AaBbCcDdFe Normal Heading 1 E 2. What is the optimal ordering policy (te order quantity and reorder point) for Vodka ifa Q systems is used? Richard would like to have a service level of 90 % 3. Using Vodka as an example, explain to Richard why the policy you provide above is better than what Kelly has been using. 2. Use cost calculations, to explain to Richard why the policy you suggest above will help reduce the costs. b. Explain to Richard how the new policy you propose would reduce the time Kelly spends on managing inventory, while also reducing the inventory costs. 4. IfaP system is used for Vodka, with a review period of 5 weeks, What is the safety stock needed to maintain 90% service level? Explain why the safety stock is higher than if a system is used. C. d. What is the Target inventory level for Vodka? Focus