Leather Hide Store Mike and Kelly Kyson were two small city teachers who happen to fall in love and get married. Soon after they were married, children were on the way Kelly was always involved in crafts and wanted to spend time with her children in she figured that she could stay home and make leather handbags and purses to earn extra money. After doing this for a while, she grew tired of dealing with the large leather suppliers and jobbers-who were giving heavy discounts to large customers, but were charging near retail prices to mid and small business. She decided to directly source the leather herself. To get the volumes necessary to buy directly from the leather tanners and processors, Kelly needed to him in higher volumes. Initially, she would order large leather shipments and sell-off the excess on EBay. It did not take long for her to realize that she was making more money selling leather than making and selling handbags and purses. Within a couple of years Kelly and Mike became the largest leather suppliers on EBay. They decided to expand their operations and start-up a website and call their new company the Leather Hide Store After getting the Leather Hide Store up and running, the Kysons expect to sell around 7280 hides per year. On top of the web business, the Kysons plan to keep selling on EBay, but they plan to reserve their eBay business to get rid of overstocks or sell special orders. Leather is a natural product and is sold typically as full or half hides. The average hide covers 50 square feet; however hides can range from 35-to-75 square feet. On average the Kysons pay $125 for the hides, including materials overhead and labor. The inbound freight cost is $8.00: labor to receive each hide and maintain it in inventory cost $5, plus $1 per month. Storage space cost $0.05/sq. ft. per month The Kysons have decent credit and are able to borrow at and APR of 6%. The Kyson's figure that insurance per hide runs about $0.25 per hide; taxes run about $2 per $100 value with a 30% tax rate; loss and damage runs about 4% per year; obsolescence runs 28 per year. While Mike and Kelly decide on the colors and quantity of hides, the actual ordering is Janet's responsibility. Janet is their office manager. Janet earns around $ 700 per week (including salary and fringes) and spends half of her time processing orders and processes an average 4 orders per week. After operating their website for two months the Kysons hired you as a consultant to streamline their ordering and inventory process. Over the most recent 4 week period, the Leather Hide Store had the following daily demand for hides: - 21 28 Week-1 Week 2 Week 3 Week-4 Monday 20 32 Tuesday 33 Wednesday 31 34 Thursday Friday Over the same 4 week period, they had 16 orders with the following order cycle times: 5, 3, 2, 7,3,3,4,3,7,6,5,4,3,3, 3, 2, and 5 days Case Questions 1. What is the inventory carrying rate? 2. What is the current number of orders per year if Janet is making 4 orders per week 3. What is the economic order quantity 4. What will be the number of orders per vear based upon the economic order quantity 5. What is the reorder point at 90%, 95%, and 99% certainty 6. (a) How does the certainty level influence the cost. (b) which certainty level would you recommend and why? Leather Hide Store Mike and Kelly Kyson were two small city teachers who happen to fall in love and get married. Soon after they were married, children were on the way Kelly was always involved in crafts and wanted to spend time with her children in she figured that she could stay home and make leather handbags and purses to earn extra money. After doing this for a while, she grew tired of dealing with the large leather suppliers and jobbers-who were giving heavy discounts to large customers, but were charging near retail prices to mid and small business. She decided to directly source the leather herself. To get the volumes necessary to buy directly from the leather tanners and processors, Kelly needed to him in higher volumes. Initially, she would order large leather shipments and sell-off the excess on EBay. It did not take long for her to realize that she was making more money selling leather than making and selling handbags and purses. Within a couple of years Kelly and Mike became the largest leather suppliers on EBay. They decided to expand their operations and start-up a website and call their new company the Leather Hide Store After getting the Leather Hide Store up and running, the Kysons expect to sell around 7280 hides per year. On top of the web business, the Kysons plan to keep selling on EBay, but they plan to reserve their eBay business to get rid of overstocks or sell special orders. Leather is a natural product and is sold typically as full or half hides. The average hide covers 50 square feet; however hides can range from 35-to-75 square feet. On average the Kysons pay $125 for the hides, including materials overhead and labor. The inbound freight cost is $8.00: labor to receive each hide and maintain it in inventory cost $5, plus $1 per month. Storage space cost $0.05/sq. ft. per month The Kysons have decent credit and are able to borrow at and APR of 6%. The Kyson's figure that insurance per hide runs about $0.25 per hide; taxes run about $2 per $100 value with a 30% tax rate; loss and damage runs about 4% per year; obsolescence runs 28 per year. While Mike and Kelly decide on the colors and quantity of hides, the actual ordering is Janet's responsibility. Janet is their office manager. Janet earns around $ 700 per week (including salary and fringes) and spends half of her time processing orders and processes an average 4 orders per week. After operating their website for two months the Kysons hired you as a consultant to streamline their ordering and inventory process. Over the most recent 4 week period, the Leather Hide Store had the following daily demand for hides: - 21 28 Week-1 Week 2 Week 3 Week-4 Monday 20 32 Tuesday 33 Wednesday 31 34 Thursday Friday Over the same 4 week period, they had 16 orders with the following order cycle times: 5, 3, 2, 7,3,3,4,3,7,6,5,4,3,3, 3, 2, and 5 days Case Questions 1. What is the inventory carrying rate? 2. What is the current number of orders per year if Janet is making 4 orders per week 3. What is the economic order quantity 4. What will be the number of orders per vear based upon the economic order quantity 5. What is the reorder point at 90%, 95%, and 99% certainty 6. (a) How does the certainty level influence the cost. (b) which certainty level would you recommend and why