Inventory Management

SHANTI BUSINESS SCHOOL

PGDM Programme / Operations Management (OM) / Inventory Management

1. Dunstreet’s Department stores would like to develop an inventory ordering policy of 95% probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white sheets. Demand is 5,000 per year. The store is open 365 days per year. Every two weeks (14 days), inventory is counted and a new order is placed. It takes 10 days for the sheets to be delivered. Standard deviation of demand for the sheets is 5 per day. There are currently 150 sheets on hand. How many sheets should you order?

Service level P = .95, D = 5000, [pic] = 5000/365, T = 14 days, L = 10 days, [pic] = 5 per day, and I =150.

[pic]

[pic]= 24.495

From Standard normal distribution, z = 1.64

[pic] = 218.94 [pic] 219

2. UA Hamburger placed a daily order for its high volume items (hamburger patties, buns, milk and so on). It counts its current inventory on hand once per day and phones in its order for delivery 24 hours later. Determine the number of hamburgers should order if average daily demand is 600, standard deviation in demand is 100 and desired service probability is 99%. And the present hamburger quantity is 800. What is the most they will ever have to order based on the current information?

Service level P = .99, [pic] = 600 hamburgers per day, T = 1 day, L = 1 day, [pic] = 100 hamburgers per day, and I = 800 hamburgers.

[pic]

[pic]= 141.42 hamburgers

From Standard normal distribution, z = 2.326

[pic] = 728.94 [pic] 729 hamburgers

3. Demand of an item is 1000 units per year. Each order placed costs $10; the annual cost to carry items in inventory is $2 each.

a. In what quantities should the item be ordered?

b. Supposing a $100 discount on each order is given if orders are placed in quantities of 500 or more. Should orders...