The Luxury Luggage Company predicts that 5,280 cases of zippers will be used dur

Question

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 = Desired Service Level * Standard Deviation of Lead Time * Demand Average

= 95.25 * 1 * 20

= 1905 Units

b. Reorder Point = Average Daily Usage * Lead Time

= 20*5

= 100 Units

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