The Northern Appliance Company (NAC) assembles refrigerators for the domestic market. The compressor units used in the model F70 refrigerator are purchased from international suppliers. An analysis of the purchasing operation shows that approximately 2.5 hours are required to process a purchase order, regardless of the quantity purchased. Salaries in the Purchasing Department average OMR 12 per hour, including employee benefits. In addition, a detailed analysis of 30 previous purchase orders showed that OMR 388 was spent on telephone, paper, and other consumables directly related to the ordering process. Also, the companys financial analysts established a holding cost of 19%. The annual demand for the compressors is 16,200 units, and the assembly plant operates 280 days per year. The lead time for the compressors is variable. Data for lead times from the past 70 orders is provided in the file LT.xls. Currently, the company has a contract to purchase the compressors from the supplier at a cost of OMR 42 per unit, and it is using a policy of replenishing its inventory of compressors once a month. Service level guidelines indicate that 0.5 stockouts per year is acceptable.

A 1. What is the ordering cost? 2. Assuming that the lead time data sample (LT.xls) in your possession is large enough, determine whether the lead time is normally distributed or not. 3. Calculate the current annual total inventory cost under the companys current policy. 4. Which model should be used to find the best inventory policy? Justify your answer. 5. Determine the optimal order quantity. 6. How much safety stock is recommended for the company to carry? 7. State the optimal inventory policy. 8. What is the optimal total annual inventory cost? 9. How much savings does the Company achieve by implementing the optimal policy? 10. The most recent order for compressors

has been placed on Sunday April 19, 2020 at 8:00 a.m. What is the probability that the order will not have arrived by the end of Sunday April 26, 2020? 11. Introduction of a new product has resulted in reducing the storage capacity for the compressors to an average of 100 units. How should the companys inventory policy be reviewed to cope with this new restriction? What would be the impact of the revised policy on the costs? Explain

Uncertain Demand After one year of operations, the Northern Appliance Company reached agreement with suppliers to ensure a constant lead time of 5 days. However, the company also realized that daily demand for the compressors exhibited some variability, with the mean annual demand still at 5400 units, but with a standard deviation of 350 compressors. 19. The company has decided on a type 1 service level of 98%. Accordingly, what size of safety stock should be kept to cope with this uncertainty? 20. Determine the total annual inventory cost under this 98% service level inventory policy. 21. In a first assessment of the new policy, the company managers concluded that the type I service level is not enough information encompassing. What is meant by this? 22. Calculate the fill rate for a reorder level of 750 compressors? 23. What is the expected number of units short per cycle?

1 Historic record of lead times in days for the past 70 cycles 5.9 6,3 5.5 4.9 1 Historic record of lead times in days for the past 70 cycles 5.9 6,3 5.5 4.9 1 Historic record of lead times in days for the past 70 cycles 5.9 6,3 5.5 4.9 1 Historic record of lead times in days for the past 70 cycles 5.9 6,3 5.5 4.9 1 Historic record of lead times in days for the past 70 cycles 5.9 6,3 5.5 4.9 1 Historic record of lead times in days for the past 70 cycles 5.9 6,3 5.5 4.9