The Fine Garments Company sells fashion clothing.The forecasted annual demand for its premium leather jacket is 1200.The order processing cost per da is $25, and the inventory holding cost is $50/item/year.

The company wants to use a reorder point system.It has the order quantity set at 35.To allow for uncertainties in delivery and in customer demand it wishes to hold 4 weeks of demand as safety stock.What should its reorder point be if the delivery lead time is 2 weeks?

Problem 2: (5 marks)

Design a periodic inventory control system for the Fine Garments Company (Problem 1) if it wishes to hold 5 weeks of demand as safety stock.If on a day of review, the inventory of the premium leather jacket is 102, how many leather jackets should be ordered?

Problem 3: (10 marks)

The Fine Garments Company has opted for the reorder point system and it has two options for transportation; by the truck and by rail.Truck transportation takes 1 week, while rail transportation takes 2 weeks of lead time.Truck transportation costs $2 per leather jacket, while by rail the transportation cost is $1 per leather jacket.It is the policy of Fine Garments to hold enough inventories to cover demand for twice the lead time.Which transportation option costs less?What is the reorder point for each option?

The decision is impacted only by the safety stock needed, transportation cost and the transit inventory cost, all other costs remaining equal.

Problem 4: (15 marks)

Hamilton Fabricators at Te Rapa orders steel plates from the Te Akau steel plant on a regular basis.An investigation revealed the following details:annual demand = 5,000 tons, cost of steel = $2,000/ton, current order size = 500 tons transported by TranzRail, TranzRail transport cost = $100/ton, safety inventory carried = 50% of demand during replenishment lead time, Inventory holding cost = 25% of purchase price per year, replenishment lead time = 5 days.

Calculate the transit inventory cost, the safety inventory cost, and the transportation cost on an annual basis.