Jill’s Job Shop buys two parts (Tegdiws and Widgets) for use in its production system from

two different suppliers. The parts are needed throughout the entire 52-week year. Tegdiws are

used at a relatively constant rate and are ordered whenever the remaining quantity drops to the

reorder level. Widgets are ordered from a supplier who stops by every three weeks. Data for

both products are as follows:

ITEM

Annual demand

Holding cost (% of item cost)

Setup or order cost

Lead time

Safety stock

Item cost

TEGDIW WIDGET

$10,000

$5,000

20%

20%

$150.00

$25.00

4 weeks

1 week

55 units

5 units

$10.00

$2.00

a. What is the inventory control system for Tegdiws? That is, what is the reorder quantity and

what is the reorder point?

Item X is a standard item stocked in a company’s inventory of component parts. Each year the

firm, on a random basis, uses about 2,000 of item X, which costs $25 each. Storage costs, which

include insurance and cost of capital, amount to $5 per unit of average inventory. Every time an

order is placed for more item X, it costs $10.

a. Whenever item X is ordered, what should the order size be?

b. What is the annual cost for ordering item X?

c. What is the annual cost for storing item X?

Gentle Ben’s Bar and Restaurant uses 5,000 quart bottles of an imported wine each year. The

effervescent wine costs $3 per bottle and is served only in whole bottles because it loses its

bubbles quickly. Ben figures that it costs $10 each time an order is placed, and holding costs

are 20 percent of the purchase price. It takes three weeks for an order to arrive. Weekly demand

is 100 bottles (closed two weeks per year) with a standard deviation of 30 bottles.

Ben would like to use an inventory system that minimizes inventory cost and will provide a

95 percent service probability.

a. What is the economic quantity for Ben to order?

A local service station is open 7 days per week, 365 days per year. Sales of 10W40 grade premium

oil average 20 cans per day. Inventory holding costs are $0.50 per can per year. Ordering

costs are $10 per order. Lead time is two weeks. Backorders are not practical—the motorist

drives away.

a. Based on these data, choose the appropriate inventory model and calculate the economic

order quantity and reorder point. Describe in a sentence how the plan would work. Hint:

Assume demand is deterministic.

b. The boss is concerned about this model because demand really varies. The standard deviation

of demand was determined from a data sample to be 6.15 cans per day. The manager

wants a 99.5 percent service probability. Determine a new inventory plan based on this

information and the data in a . Use Qopt from a .