Mark whether each statement is either True (T) or False (F). 1. When either dema
ID: 391376 • Letter: M
Question
Mark whether each statement is either True (T) or False (F). 1. When either demand or lead time or both are uncertain, safety stock is part of the average inventory 2. Safety stock decreases as lead time variability (standard deviation) increases. 3. In the (Q,r) model, the ROP should increase if demand becomes more uncertain. 4. The higher the service level desired, the lower your inventory level should be. 5, A service level of 90% means that the ratio of average sales to average demand is 90%. 3 Problems (5 points each, 20 total points) Show the logical steps of your work. Show calculations, as required, not simply the final an- swer. Partial credit may be provided at the discretion of the instructor. 1. Refer to the EMMICO case spreadsheet, and the first item on the spreadsheet. It has the material code: 124223.07, and description: housing. The mean and standard deviation of daily demand are 1,458 and 1,655, respectively. Service level is given as 98%. (a) Suppose it is a newsvendor problem. That is, you buy and sell in one shot no need to consider lead time, lead time variation etc. With the given service level, how much should EMMICO order? What is your fill rate (FR1, and FR2)1? The cost price is given as 4.46838 per unit. Suppose EMM ICO has a margin of 20% of its revenue. Unsatisfied customers do not get any additional coupons. Any leftover housing can be sold at a discounted price of 3.0. What should be the desired service level? How much should EMMICO order? What will be the new fill rate? (b) (c) What will be EMMICO's profit given the information in (b)? (d) With this cost information, will you recommend a 98% SL? 2. Consider the same item, with code 124223.07. However, now consider the original prob- lem, where there are repeated orders. Therefore, consider all relevant information, in- cluding lead time mean and standard deviation, ordering cost, annual carrying cost % , etc. Use the SL of 98%. Use the (Q,r) model. You may remember what you did for the CS-2 homework. (a) What is the EOQ for this material? (b) After how many days, on an average, should EMMICO order? (c) What is the annual ordering cost for EMMICO for this product? Consider 365 days in a year. (d) What is the level of safety stock? (e) What is the re-order point? (f) How much is the average inventory? What is the annual cost of holding this inven- tory? (g) What is the total relevant cost-ordering cost+inventory holding cost, for this prod- uct? 3, Consider the same item, and the same SL of 98%. Use the OUL model. Consider the period review interval of 5 days (i.e. T-5). Calculate the following:Explanation / Answer
Answering the first 5 questions:
1. When either demand or lead time or both are uncertain, safety stock is part of the average inventory – False
In such scenarios, the safety stock is set much higher.
2. Safety stock decreases as lead time variability increases – False
The safety stock decreases usually when the lead time variability decreases.
3. In a (Q,r) model, the ROP should increase if demand becomes more uncertain – False
In such a case, the ROP usually decreases
4. The higher the service level desired, the lower your inventory level should be.- False
The higher the service level desired, the higher your inventory level should be.
5. A service level of 90% means that the ratio of average sales to average demand is 90%.- False
A service level of 90% indicates that there is a probability of 90% that the demand will be met during lead time and there are 10% chances of a stockout.