2. The following table contains the monthly usage and unit costs for a random sample of 15 items from a list of 2,000 inventory items at a health care facility. LO2 Item Unit Cost Monthly Usage K34 10 200 K35 25 600 K36 36 150 M10 16 25 M20 20 80 Z45 80 700 F14 20 300 F95 30 800 F99 20 60 D45 10 10 550 D48 12 90 D52 15 110 D57 40 120 N08 30 40 P05 16 500 a. Develop an A-B-C classification for these items. b. How could the manager use this information? c. After reviewing your classification scheme, suppose that the manager decides to place item P05 into the A category. What are some possible explanations for this decision? Audrey Blondeau is in charge of the promotional (gift) items of Cameco, one of the largest uranium producers in the world. Promotional items include mugs and T-shirts printed with the company logo. Located in the investor, corporate, and government relations department, Audrey receives requests for gift items from supervisors and employees of Cameco for special events and also from local charities for donations of gifts. Audrey had no system in place for receiving orders from the employees or for ordering the approximately 190 items her office carries. Most items are purchased from Impact Marketing (http://www.impactmarketing.ca), which will inscribe the company logo on the items. The reasons for carrying inventory are that the supplier requires a minimum order quantity, a setup charge (depending on the type of item), and a lead time of two weeks for producing an item. Large orders from supervisors, over the minimum, are passed directly to the supplier for production. The supplier needs artwork approval for new items. The donation requests have to be approved for a budget and are met mostly from slow-moving stocked items. To improve efficiency, Audrey created a simple employee request form and reduced the number of items she carried to 40. She also added 11 new items to replace old models of popular items such as mugs, bottles, and bags. Audrey is also trying to make her job easier by establishing a fixed-interval system with order interval of two months for the promotional items. She has collected the demand (from Cameco employees) for the promotional items during the last few months and has estimated the average monthly demand for the next few months and the standard deviation of monthly demand for the items. First, she is focusing on all-season items. Seasonal items such as golf balls and fleece vests will be replenished just before the season. Consider, for example, the following all-season items: Executive sports bag Retro stainless steel mug Item Avg. Monthly Demand Standard Dev. of Monthly Demand On Hand Min Order Quantity 12 4 0 25 15 2 4 60 35 6 16 75 Lava pen Heavyweight brushed cotton cap 60 6 72 Questions 1. What are the order-up-to level and the order quantity for these items? Audrey thinks that a lead time service level of 70 percent is adequate as large orders are passed to the supplier and the requisitioner is willing to wait two weeks. 2. In the case of the heavyweight brushed cotton cap, the supplier is offering the following quantity discount. If holding cost rate is 12 percent per year and setup cost is $50 per setup, how many units should Audrey order? Quantity Range 72-143 144-239 240-575 Source: Audrey Blondeau, "Cameco's Promotional Item System: Employee Ordering" (term paper), Dec. 2006. COMM 205. Unit Price $8.75 $7.95 $7.50 12. A chemical plant produces sodium bisulfate in 100 kg bags. Demand for this product is 20 tonnes per day. The capacity for producing this product is 50 tonnes per day. Setup cost is $400, and holding cost is $200 per tonne per year. The company operates 200 days a year. (Note: 1 tonne 1,000 kg) LO3 a. What is the optimal number of bags per production run? b. What would the average inventory level be for this lot size? c. Determine the approximate length of a production run, in days. d. About how many production runs per year would there be? e. How much could the company save annually in inventory control cost if the setup cost could be reduced to $200 per production run and the optimal production quantity is recalculated and used? 18. The manager of a large electronics store wants to begin stocking a universal TV remote control device. Expected monthly demand is 800 units. The remote controls can be purchased from either supplier A or supplier B. Their price lists are as follows: LO3 Supplier A Supplier B Quantity Unit Price Quantity Unit Price 1-199 $14.00 1-149 $14.10 200-499 13.80 150-349 13.90 500+ 13.60 350+ 13.70 Ordering cost is $40 per order and annual holding cost is 25 percent of unit price. Which supplier should be used and what order quantity is optimal if the intent is to minimize total annual cost? 22. Given the following information: LO4 Expected demand during a lead time = 600 kg Standard deviation of demand during a lead time = 52 kg Demand during a lead time is distributed Normally. Acceptable stockout risk during a lead time = 4 percent a. What amount of safety stock is appropriate? b. At what level of inventory should this item be reordered? 28. Experience suggests that usage of copy paper at a small copy centre can be approximated by a Normal distribution with a mean of five boxes per day and a standard deviation of one-half box per day. Two days are required to fill an order for paper. Ordering cost is $10 per order, and annual holding cost is $10 per box. LO3-LO5 a. Determine the economic order quantity, assuming 250 workdays a year. b. If the copy centre reorders when the paper on hand and on order is 12 boxes, calculate the risk of a stockout during a lead time. 6. A large law firm uses an average of 10 packages of copier paper a day. Each package contains 500 sheets. The firm operates 260 days a year. Holding cost for the paper is $1 per year per package, and ordering cost is $10 per order. LO3 a. What order quantity would minimize total annual ordering and holding cost? b. Calculate the total annual inventory control cost using your order quantity from part a. c. Except for rounding, are annual ordering and holding costs equal at the EOQ? d. The office manager is currently using an order quantity of 100 packages. The partners of the firm expect the office to be managed in a cost-efficient manner. Would you recommend that the office manager use the optimal order quantity instead of 100 packages? Justify your answer.