Question 1- Inventory Management (LO3

Simeon runs a business that imports tables fram China for sale in the UK

ements

The supplier sells these to Simeon in batches of 1,000 units.

ents

Historically sales demand has been stable and relatively even throughout the year, at a rate of 2,500 units per month (2018 to 2020) In the period January to June 2021 however this increased to 3,000 per month, and they have run out of stock every month as a result. They have estimated that each stock out has cost them 1,000 each in lost business. Simeon has had this problem before in2018 (6 stock outs) and 2019 (3 stock outs) but in 2020 he had fixed the problem and achieved no stock out events.

List

Each batch, including shipping and taxes costs f2,500. The cost of placing and processing each order, regardless of quantity, is 100

Recordings Records show the following average stock holdings and associated costs

2018 500 units E1.200

2019 750 units 1,700

2020 1.250 units 2,700

Required

a)lf the increased demand seen so far in 2021 continues, what is the the optimum order size you would recommend to Simeon?

[10 marks]

b)Also, what is the optimum base stock level?

[7 marks]

c)For each of the two areas above, explain the results and advise Simeon on the potential impacts of unexpected delays in the supply chain.

[8 marks]