Reference no: EM13336354

1. A regional distributor purchases appliances from suppliers and sells to retailers. The distributor uses continuous review policy and works 5 days a week, 50 weeks a year. Orders can be received during the business operation hours only. A recent inspection of inventory suggests a review of ordering policies which currently calls for order quantities of 500 for their popular brand 27 Cu. Ft. refrigerator. Average daily demand of this refrigerator is 120 units, standard deviation of daily demand is 30, lead time for orders is 5 days, daily holding cost per unit is $0.45, placing an order costs $95, and management wants to maintain 95% service level.

a)  What order quantity should be used?

b)  What is the safety stock level?

c)  What is the reorder level?

d)  What is the overall average inventory level?

e)  What is the total annual cost of the inventory system, holding cost and ordering cost?

f)   If on-hand inventory is 60 units and one order for 500 units is already placed, should a new order be placed?

g)  If the lead times are also variable, following a normal distribution with average of 5 days and standard deviation of 2 days, what will be the reorder point if the company wants to maintain the same level of service level?

h)  You are going to verify if periodic review of the inventory works better than continuous review. What you will do?

2. Golden Eagle Outfitters is a supplier of outdoor gear for hikers. Sales vary significantly through seasons, so an annual review of inventory and sales is a routine process. A recent review of the books shows that Golden Eagle Outfitters' last year inventory turnover ratio was 4. Last year sales totaled $6,800,000 (at cost). Average annual inventory holding cost is $95,000. Three major suppliers of Golden Eagle Outfitters have lead times of 10, 15, and 20 days. Golden Eagle Outfitters also need 5 days for processing and transportation of customer orders and their goal is to achieve a 15-days delivery promise.

a)What was the value of average inventory held last year?

b)  How Golden Eagle Outfitters can reduce inventory holding cost? Clearly explain the data you need for this analysis, including the items not mentioned in the problem statement. What are the implications in supply chain?

3. Choose a family of products and explain their supply chain. Use your knowledge of supply chain management and be specific on the following:

a) Discuss potential conflicting objectives you see in this supply chain.

b) What specific lot size-inventory trade-offs you see for this family of products?

c) What specific inventory-transportation cost trade-offs you see for this family of product?

d) What specific lead time-transportation cost trade-offs you see for this family of products?

e) What specific product variety-inventory trade-offs you see for this family of products?

f) What specific cost-customer service trade-offs you see for this family of products?

4. We have discussed long term contracts within the past few weeks.

a) What is a long term contract and what kind of products and services probably use this kind of contract?

b) What is the impact of long term contract on a company's operations?

c) What are the advantages and disadvantages of long term contract for a supplier? Explain.

d) What are the advantages and disadvantages of long term contract for a buyer/retailer? Explain.

e) From the Web, find an article discussing the long term contract effect on suppliers. Briefly summarize this article. Provide the web site address (URL) and a copy of the source document (minimum of one page from the web site).

5. Consider the following demand scenario:

Quantity	Probability
5,000	4%
5,500	6%
6,000	9%
6,500	12%
7,000	13%
7,500	11%
8,000	9%
8,500	6%
9,000	5%
9,500	9%
10,000	8%
10,500	5%
11,000	3%

The variable production cost is $50/unit and the fixed cost is $180,000. The product is sold to end customers for $190/unit during the season and any unsold units are sold for $40/unit after the season. In a buy back scenario, the manufacturer will buy back units at $69/unit. Also, in a payback scenario, the retailer will pay $15 for each unit it does not purchase. In both the payback and buy back scenarios, the manufacturer sells the product for $125.00.

a) What is the system optimal production quantity and expected profit under global optimization?

b) What is the system optimal production quantity and expected profit under a payback scenario? What is the profit for the retailer and for the manufacturer?

c) What is the system optimal production quantity and expected profit under a buyback scenario? What is the profit for the retailer and for the manufacturer?

d) Provide the results of your analyses supporting your answers to parts a) through c).