Wooden Stuff is a furniture retailer operating in Cambridge, Boston. It mainly commercializes wooden desks in various sizes and shapes, and they have become very popular among MIT and Harvard students that need to furnish their rental apartments. To date, they have been managing their inventory with a simple Base Stock Policy: one item sold, one item ordered. This has worked well for a few years, but now they would like to switch to a more sophisticated policy.

Their flagship product is SKU 1498AQ, the Lifting Table, a table that can be adjusted to different heights to allow working in seated or standing position. This product accounts for one third of their sales and they would like to ensure a Cycle Service Level of 95% for this item.

You have been asked to analyze this item and propose an inventory management policy that fits the company’s needs. After doing a little bit of research, you have estimated that the annual holding charge for the Lifting Table is 25%. The demand planner has given you some interesting data: the demand for the Lifting Table follows a normal distribution with a mean of 1606 units per year and a standard deviation of 188 units.

The purchasing department informs you that the cost of each desk is $120 and the estimated ordering costs are $100 per order. It usually takes 10 days for the ordered items to arrive to the Wooden Stuff facilities. Every Lifting Table is sold at a price of $300. (Assume that there are 365 days in one year, and 30 days in a month.)

After analyzing all the available information and interviewing some key stakeholders in the company, you have decided to explore a Continuous Review Policy (s, Q).

What would be the replenishment order quantity EOQ?

What would be the reorder point s ?

f this policy was to be implemented, what would be the Item Fill Rate?

Based on market research and historical data, the Wooden Stuff financial manager has estimated that the cost per stockout event is $323. He thinks the policies you proposed might be allowing too many stockout events to happen.By focusing on this metric, what would be the new value of the safety factor k?

Is it true that the policy proposed in Part 1 allows for more stockout events than a policy that uses the safety factor you just calculated ?

The operations manager would like to use the solution proposed in Part 1, but it would be more convenient for his team to review the inventory level only twice a month (every 15 days). Considering his feedback, you decide to transform the Continuous Review Policy in Part 1 into a Periodic Review Policy (R, S).

What would the average replenishment order quantity be in this case?

What would the Order Up to Point quantity S be in this case?

Wooden Stuff really liked your job and has hired you as his new inventory manager! You now have to implement the Periodic Review Policy you suggested in Part 4. It is your first week in the company and the supplier of the Lifting Table has contacted you to make you an offer.

The supplier offers to reduce the lead time by 7 days (so your new lead time would be 3 days) but with an increase of 5% in the cost per unit. If you decide to take his offer, how will this impact your inventory (in units)?