Practice Problem - Inventory Management Babson Bears (BB - fictional) is an on-line company which makes a variety of stuffed teddy bears with college logos tattooed (embroidered) on the bears arm. They produce a very successful line of Bears of varied sizes per a sales forecast, and then hold inventory of the finished bears in stock. These Make-to-Stock bears are then shipped directly to customers after receiving their on-line order. BB has also recently introduced a line of bears which allow customers to supply a custom-designed logo that can be embroidered on their desired bear. Given the high level of customization allowed by this new process, the supply chain model is planned as a pull system, i.e. Make-to-Order, which presents new supply chain challenges to the company. To fulfill these on-line custom orders, BB will produce these bears in the same facility as the Make-to-Stock bears and will use all of the same component materials for the operation. All of these materials will continue to be outsourced from the same Asian suppliers. With the start-up of this Make-to-Order business, the BB Materials Director has begun to revise his inventory management plan. The Director is most concerned about the one material that is common to all bears, the synthetic stuffing material used to stuff the bears. The Asian supplier of the stuffing has agreed to produce and transport the stuffing material as one consolidated shipment to BBs U.S. plant, thus providing BB the economies of scale that it anticipated. The price for the material has been quoted by the Asian supplier at $ .11 per ounce with a lead-time (inclusive of all shipping) of 45 days. Based on recent history of BBs business, the Director has forecasted total stuffing material for the Make-to-Stock bears, in ounces in Figure 1. In addition, the marketing team has also forecasted the new Make-to-Order business in terms of total bears they believe will be sold in the new custom business. Their forecast is below, in Figure 2. FIGURE 1. FIGURE 2. 2014 Stuffing Forecast for Make-to-Stock Bears (ounces) 2014 Forecasted Sales of Make-to-Order Bears (# of Bears) Quarter 1 400,000 Quarter 1 9,500 Quarter 2 390,000 Quarter 2 9,000 Quarter 3 420,000 Quarter 3 10,500 Quarter 4 410,000 Quarter 4 12,000 Full Year 2014 1,620,000 Full Year 2014 41,000 Finally, the Director has also estimated other important data as follows: Weighted Average stuffing quantity / bear (ounces) 9.50 Inventory Holding Costs ($/ounce/month) $.03 Order Administration Costs ($/order) $164.00 Shipping costs ($/ocean shipment) $13,300.00 (fixed cost per shipment, regardless of order size) (Recall: 16 ounces = 1 pound)

(Gen 4) Asuume that you have a product with the following relevant perimeters; annual demand=1600; annual holding cost = $1.50/unit; order cost = $150 order. Assuming 365 work days/year, lead time of 15 days, and a min safety stock of 12 units calculate the ROP and round answer to nearest whole number.