Advanced : Safety stocks and uncertain demand DB p.l.c. operates a conventional stock control system based on
Question:
Advanced : Safety stocks and uncertain demand DB p.l.c. operates a conventional stock control system based on re·
order levels and Economic Ordering Quantities. The various control levels were set originally based on estimates which did not allow for any uncertainty and this has caused difficulties because, in practice, lead times, demands and other factors do vary.
As part of a review of the system, a typical stock item, Part No.
X206, has been studied in detail as follows
Note: it can be assumed that the demands would apply for the whole of the appropriate lead time.
DB p.l.c. works for 240 days per year and it costs £0.15 p.a. to carry a unit of X206 in stock. The re-order level for this part is currently 150 000 units and the re-order cost is £1 000.
You are required:
(a) to calculate the level of buffer stock implictl in a re-order level of 150000 units; (4 marks)
(b) to calculate the probability of a stock-out; (2 marks)
(c) to calculate the expected annual stock-outs in units;
(3 marks)
{d) to calculate the stock-out cost per unit at which it would be worthwhile raising the re-order level to 175 000 units;
(3 marks)
(e) to discuss the possible alternatives to a re-order level EOQ inventory system and their advantages and disadvantages
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