Inventory Management 2

This problem is inspired by the End-of-Topic Case 13.9 from the ME book - but some of the numbers are different! Please use the data below:

Fresh out of college, Monica Larsen's first assignment in her new job as a purchasing agent at Aggie Gifts was to decide whether to continue to purchase a boxed pen set from an existing supplier or consider a proposal from a new supplier. She also had to evaluate whether current purchasing practices were effective. Aggie Gifts bought pen sets from Pens for You for $21/set. Pens for You shipped products from its factory in China with a delivery lead time of six weeks, charging a processing fee of $150/order. The lead time for Pens for You showed a standard deviation of 1.2 weeks. However, Penultimate, a relative newcomer to the industry, had offered a similar set that it produced in the U.S. but cost $28/set. Penultimate however promised four week delivery and charged only $125/order. The lead time for Penultimate also showed a standard deviation of 1.2 weeks.

Aggie Gifts' demand for the pen sets was normally distributed with a mean of 200 sets/week and a standard deviation of 25 sets/week. They were open fifty weeks each year. Monica had established that the average annual cost of carrying inventory amounted to 18 percent of the value of inventory. Aggie Gifts used a reorder point system to manage all of its inventory items. Given the demanding nature of its customers, it maintained a 96 percent Cycle Service Level. Being her first assignment, Monica felt the pressure to make recommendations that would help the company and demonstrate that she understood the business.

Please refer to sections 13.6 and 13.7 in the ME book to answer the following questions:

Your Answers

1. What is the economic order quantity (EOQ) for Pens for You?

2. What is the economic order quantity (EOQ) for Penultimate?

3. What is the Reordering Point with Safety Stock for Pens for You?

4. What is the Reordering Point with Safety Stock for Penultimate?

5. What is the Total Cost of Inventory with Safety Stock for Pens for You?

6. What is the Total Cost of Inventory with Safety Stock for Penultimate?

7. Which supplier should Monica select based on Inventory Costs?