Problem B (10 points) The Luxury Luggage Company predicts that 5,280 cases of zi
ID: 2548530 • Letter: P
Question
Problem B (10 points) The Luxury Luggage Company predicts that 5,280 cases of zippers will be used during the year to satisfy production needs. The following additional information is known: · On average, 20 cases of zippers are used per work day. Production is very consistent. There are no significant deviations in demand. · On average, it takes 5 work days from the date an order is placed with a vendor to receipt of the zippers. However, lead time can vary. The standard deviation of lead time is 1 day. · On average, the zippers cost $20 per case. · The owner of the company wants a high level of customer service (95.25%) The plant manager has been asked to control the amount of material on hand (not too little, not too much). Given the information above and using the techniques learned in class: a. How many cases of zippers should Luxury Luggage maintain as safety stock? b. At what point (what inventory quantity level) should the plant manager place an order for zippers? Problem B (10 points) The Luxury Luggage Company predicts that 5,280 cases of zippers will be used during the year to satisfy production needs. The following additional information is known: · On average, 20 cases of zippers are used per work day. Production is very consistent. There are no significant deviations in demand. · On average, it takes 5 work days from the date an order is placed with a vendor to receipt of the zippers. However, lead time can vary. The standard deviation of lead time is 1 day. · On average, the zippers cost $20 per case. · The owner of the company wants a high level of customer service (95.25%) The plant manager has been asked to control the amount of material on hand (not too little, not too much). Given the information above and using the techniques learned in class: a. How many cases of zippers should Luxury Luggage maintain as safety stock? b. At what point (what inventory quantity level) should the plant manager place an order for zippers?Explanation / Answer
A.Safety stock = (Maximum daily usage - Average daily usage) × Lead time.
If lead time is taken as 6 days considering 1 standard deviation of one day,
Safety Stock ={20-14.4)×6
=33.64 or 34 units.(rounded)
If Lead time is taken as 5 days, then,
Safety Stock ={20-14.46)×5
=27.7 or 28 units(rounded).
B. Re order level = Safety stock + Average daily usage × lead time.
When safety stock is 34 units and lead time is 6 days:-
34+{14.46×6}=120.76 I.e, 121 units
When safety stock is 28 units and lead time is 5 days
28+(14.46×5)=100.3 I.e, 101 units.
When safety stock is 34 and lead time is 5 days
34+(14.46×5)=106.3 I.e, 107 units.
When safety stock is 28 and lead time is 6 days
28+(14.46×6)=114.76 I.e, 115 units.
Note:- Each calculation is done taking different lead time because some also consider adding the deviation day and some don't. That is the reason why we arrived 2 values for safety stock and 4 values for ROL.
Please consider the answer by the way you adopt for calculating lead time.
Thank you.
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