Week 4 - Problem Set on Inventory Analysis

1. Mr. Stan Busfield, distribution center manager for Hogan Kitchenwares, must determine when to resupply his stock of spatulas. The DC experience a daily demand of 500 spatulas. The average length of the performance cycle for spatulas is 21 days. Mr. Busfield requires 750 spatulas be retained as safety stock to deal with demand uncertainty. What is the reorder point for spatulas?
2. Mr. Busfield recently completed a course in logistics management and now realizes that there are significant costs associated with ordering and maintaining inventory at his distribution center. Mr. Busfield has learned that the EOQ is the replenishment logic that minimizes these costs. In an effort to find the EOQ for measuring cups, Mr. Busfield has gathered relevant data. Mr. Busfield expects to sell 50,000 measuring cups this year. Hogan acquires the measuring cups for 75 cents each from Shatter Industries. Shatter charges $8 for processing each order. In addition, Mr. Busfield estimates his company's inventory carrying cost to be 12 percent annually.

a.Find Mr. Busfield's EOQ for measuring cups. Assume that Mr. Busfield accepts ownership of products upon arrival at his DC.

b.Now assume Mr. Busfield must arrange for inbound transportation of the measuring cups since Hogan accepts ownership of products at the supplier's shipping point. Quantities of fewer than 4,000 measuring cups cost 5 cents per unit to ship. Quantities of 4,000 and above cost 4 cents per unit to ship. Determine the difference in total costs associated with an EOQ of 4,000 units and the EOQ level found in part (a) when transportation costs must be considered.

c.Given the information above and the low cost EOQ alternative determined in part (b), use period-order-quantity logic to determine the number of orders Hogan would place each year for measuring cups and the time interval between orders.

Problems taken from problem set 2 of the textbook, pages 385-386 (Questions 7 and 8).