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20-26 EOQ, uncertainty, safety stock, reorder point. Stewart Corporation is a major automobile manufacturer. It purchases steering wheels from Coase Corporation. Annual demand is 10,400
20-26 EOQ, uncertainty, safety stock, reorder point. Stewart Corporation is a major automobile | ||||||||||
manufacturer. It purchases steering wheels from Coase Corporation. Annual demand is 10,400 steering | ||||||||||
wheels per year or 200 steering wheels per week. The ordering cost is $100 per order. The annual carrying | ||||||||||
cost is $13 per steering wheel. It currently takes 1.5 weeks to supply an order to the assembly plant. | ||||||||||
1. What is the optimal number of steering wheels that Stewarts managers should order according to the | ||||||||||
EOQ model? | ||||||||||
2. At what point should managers reorder the steering wheels, assuming that both demand and purchase- | ||||||||||
order lead time are known with certainty? | ||||||||||
3. Now assume that demand can vary during the 1.5-week purchase-order lead time. The following table | ||||||||||
shows the probability distribution of various demand levels: | ||||||||||
Total Demand for Steering Wheels fo 1.5 weeks | Probability of Demand (sums to 1) | |||||||||
100 | 0.15 | |||||||||
200 | 0.2 | |||||||||
300 | 0.4 | |||||||||
400 | 0.2 | |||||||||
500 | 0.05 | |||||||||
If Stewart runs out of stock, it would have to rush order the steering wheels at an additional cost of $9 | ||||||||||
per steering wheel. How much safety stock should the assembly plant hold? How will this affect the | ||||||||||
reorder point and reorder quantity. |
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