Problem 1 (EOQ 33%):

The Lucky Star Co. is planning to stock a new product. The Co. has developed the following information:

Annual usage = 5400 units

Cost of the product = 365 dollars/unit

Ordering cost = 55 dollars/order

Carrying cost = 28% of the cost of the product held per year.

Assumptions: the demand rate is constant; order quantities are fixed; planning horizon is long (infinite)

a Determine the optimal number of units per order

b. Find the optimal order time interval

Problem 2 (continuous review policy 33%):

A distributor of washer orders washers from a manufacturer and sells to retailers. Use the continuous review policy to determine the reorder level R and the ordering quantity Q given the following information:

Fixed ordering cost = $3,500

Value of a washer = $350

Annual inventory holding cost = 20% of its value

Replenishment lead time = 2 weeks

Average weekly demand = 50

Standard deviation of weekly demand = 35

Expected service level = 95%

Problem 3 open topic discussion (34%)

In the lecture, I introduced proper management strategies in manufacturing (e.g., balancing assembly line, reducing switch time) and transportation (using milk run transportation mode instead of direct shipment) that can reduce inventory cost. Are there any other management strategies that can reduce storage and inventory cost? You may use an example for demonstration. You may also discuss reasons why some companies have difficulty to reduce their inventory even though they realize that they have excessive inventory; what are barriers to reduce unnecessary inventory?