Lead time from order placement to receipt is four weeks

Assignment Help Operation Management

Reference no: EM132307809

Lead time from order placement to receipt is four weeks. Weekly demand for the product is normally distributed with a mean of 20 and a standard deviation of 5. The product costs $4 to purchase, and sells for $7. Each time an order is placed there is a fixed cost of $100. The cost of capital is 25% per year. You may ignore any physical holding costs.

an order for 600 units is placed each time inventory drops below 100 units in stock.

a) What service level is this policy designed to achieve?

b) How much annual savings would be achieved if we placed orders for the Economic Order Quantity each time we ordered?

Assume we make this change for all of the following questions.

c) Suppose we want to achieve a service level of 90%. What re-order point should we use?

d) Ignoring any effect on revenues due to potential lost sales, what is the annual savings from using the policy in part c?

e) With air shipping, there is a new lead time of only 1 week, but there will be an additional cost of $0.25 per unit for the shipping. (For simplicity, ignore any effect this might have on the economic order quantity.) Assuming we will use a policy that achieves the same service level as in the base case, calculate the total annual net savings or additional costs from using air shipment.

f) Determine an appropriate counter offer to the supplier for the air shipping. How much additional cost for air shipment would you be willing to pay? (That is, what is the breakeven price premium for air shipment?)

Reference no: EM132307809

Questions Cloud

Changed their economic and political systems : Many of the former communist countries have changed their economic and political systems,

Explain the business decision : Explain the business decision. Discuss why the business decision is valid or not valid based on your argument.

Describe how they helped to develop changes : Describe how they helped to develop changes in Europe during the 19th century - Which one do you think had the greater impact on Western society going

Code blue resuscitation kit that has normally distributed : A Regional Hospital stocks a "code blue" resuscitation kit that has a normally distributed demand during the reorder period.

Lead time from order placement to receipt is four weeks : Lead time from order placement to receipt is four weeks. Determine an appropriate counter offer to the supplier for the air shipping.

Why do you think this exhibition is important for audience : You have been hired to work as a paid intern, training volunteers to provide guided tours in your museum.

Measures for assessing effectiveness of salesforce as whole : Describe three (3) measures for assessing the effectiveness of a salesforce as a whole.

Address case cash flow and analyse potential uncertainty : Address base case cash flows but also analyse potential uncertainty. Recommendations should address the decision to be made

Advantages and disadvantages of implementing such system : What are the advantages and disadvantages of implementing such a system?

User Account

All Pages