The Winfield Distributing Company has maintained an 80% service level policy for inventory of string trimmers. Mean demand during the reorder period is 200 trimmers, and the standard deviation is 65 trimmers. The annual cost of carrying one trimmer in inventory is $6. The area salespeople have recently told Winfield's management that they could expect a $300 improvement in profit (based on current figures of cost per trimmer) if the service level were increased to 95%. Is it worthwhile for Winfield to make this change?

The Winfield Distributing Company has maintained an 80% service level policy for inventory of string trimmers. Mean demand during the reorder period is 200 trimmers, and the standard deviation is 65 trimmers. The annual cost of carrying one trimmer in inventory is $6. The area salespeople have recently told Winfield's management that they could expect a $300 improvement in profit (based on current figures of cost per trimmer) if the service level were increased to 95%. Is it worthwhile for Winfield to make this change?

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Chapter16: Lean Supply Chain Management

Section: Chapter Questions

Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...

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Daily demand for product sample kits is normally distributed with a mean of 35 units and a standard deviation of 4. Supply is virtually certain with a lead time of 9 days. The cost of placing an order is $20, and annual carrying costs for one kit is 25 percent. The price of one kit is $12.50. Assume a year has 365 days.If a 99% service level is desired, what is average inventory on hand? If demand had no variation, what would the reorder point be?
The manager of a car wash received a revised price list from the vendor who supplies soap, and a promise of a shorter lead time for deliveries. Formerly the lead time was four days, but now the vendor promises a reduction of 25 percent in that time. Annual usage of soap is 4,500 gallons. The car wash is open 360 days a year. Assume that daily usage is normal, and that it has a standard deviation of 2 gallons per day. The ordering cost is $30 and annual carrying cost is $3 a gallon. The revised price list (cost per gallon) is shown in the following table: Quantity 1 - 399 400 799 800 + Unit Price $2.00 1.70 1.62 Click here for the Excel Data File a. What order quantity is optimal? (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.) Optimal order quantity ROP b. What ROP is appropriate if the acceptable risk of a stockout is 1.5 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) gallons…
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