Consider a simple inventory system consisting of 2 items: Item, i D units/yr Ai $ Vi $/unit Oi (per month) Li (month) N 1 2 4800 3600 10 10 3 1 10 40 2 1 Throughout this problem, an EOQ policy will be assumed to be optimal for each SKU. (No graphs are required in this problem.) (a) Current ordering policy for both items is order 4 months demand when quantity on hand reaches 2 months demand. Hence, currently, what are N (total number of replenishments per year) and TACS (total average cycle stock, in dollars)? (b) For these SKUs, what is the equation of an optimal Exchange Curve for TACS vs N? (C) Suppose we choose the Pareto-Optimal point N = 20 replenishments/yr. Impute a value for A/r, and determine the two economic order quantities that you would now use. (d) Assume that the P, service measure is to be used in establishing safety stocks. For the A/r value found in part (c), develop the formula of an exchange curve for TSS (total safety stock, in dollars) versus ETSOPY (expected total stockout occasions per year). (e) Under the current policy of part (a), what are the values of ETSOPY and TSS? (f) Find the value of P, that will maintain the same ETSOPY as the current policy. What is the associated reduction in TSS? What are the reorder points of the two items? Consider a simple inventory system consisting of 2 items: Item, i D units/yr Ai $ Vi $/unit Oi (per month) Li (month) N 1 2 4800 3600 10 10 3 1 10 40 2 1 Throughout this problem, an EOQ policy will be assumed to be optimal for each SKU. (No graphs are required in this problem.) (a) Current ordering policy for both items is order 4 months demand when quantity on hand reaches 2 months demand. Hence, currently, what are N (total number of replenishments per year) and TACS (total average cycle stock, in dollars)? (b) For these SKUs, what is the equation of an optimal Exchange Curve for TACS vs N? (C) Suppose we choose the Pareto-Optimal point N = 20 replenishments/yr. Impute a value for A/r, and determine the two economic order quantities that you would now use. (d) Assume that the P, service measure is to be used in establishing safety stocks. For the A/r value found in part (c), develop the formula of an exchange curve for TSS (total safety stock, in dollars) versus ETSOPY (expected total stockout occasions per year). (e) Under the current policy of part (a), what are the values of ETSOPY and TSS? (f) Find the value of P, that will maintain the same ETSOPY as the current policy. What is the associated reduction in TSS? What are the reorder points of the two items
