• Suppose Walmart, – Sells Samsung Galaxy cell phones – Uses continuous review p

Question

• Suppose Walmart, – Sells Samsung Galaxy cell phones – Uses continuous review policy • Suppose for Galaxy cell phones at Walmart, – Average weekly demand is 1000 phones – Standard deviation of weekly demand is 200 phones – Lot size (Q) is 5000 phones • Questions Suppose that the lead time is reduced to 2 weeks • Samsung guarantees to deliver cell phones 2 weeks after cell phones are ordered –

(1) What should the safety inventory be if Walmart wishes to achieve CSL of 0.99? –

(2) What should the safety inventory be if Walmart wishes to achieve fr of 0.99?

Now suppose that the lead time is reduced to the average lead time of 2 weeks but the standard deviation of lead time is 1 week • Samsung targets to deliver cell phones 2 weeks after cell phones are ordered but cannot guarantee –

(3) What should the safety inventory be if Walmart wishes to achieve CSL of 0.99? –

(4) What should the safety inventory be if Walmart wishes to achieve fr of 0.99?

Explanation / Answer

solution-

(1) Safety Inventory

Safety inventory = ROP – Demand * Lead time

Safety inventory(SS) = 6000 – 1000 * 5 = 1000

(2) Inventory Cycle

Cycle inventory = Q/2 = 5000/2 =2500

(3) Inventory to be carried out on average basis

Q/2 + SS = 5000/2 + 1000 = 3500

(4) Cycle Service Level (CSL)

Z = ss/(std.dev*sqrt(lead time))

Z = 1000/(200*sqrt(5))

Z = 1000/1000 = 1.0

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