Falcon Tools is a retailer of battery operated hand held power tools for the con
ID: 369858 • Letter: F
Question
Falcon Tools is a retailer of battery operated hand held power tools for the consumer market (such as screwdrivers and drills). Let’s consider the replenishment/stocking decision for a popular classic battery operated screwdriver, the Master-Driver. Falcon purchases Master-Driver from a supplier and then sells them to customers. Average monthly demand for Master-Driver is normal with mean and standard deviation of 150 and 50, respectively. The lead-time for Master-Driver is also normally distributed with mean of 1 month and standard deviation of 15 days (Assume 30 days a month). Falcon purchases Master-Driver from the supplier for $30 per unit and uses an annual holding/carrying cost rate of 12%. The fixed cost associated with placing an order of Master-Driver to the supplier is $80. Assuming that Falcon estimates a $100 cost associated with each stockout (independent of the units backordered) and targets a fill rate of 98% for Master-Driver, answer following questions:
What is Falcon’s Economic Order Quantity, Reorder point and the associated Average monthly total cost of the operation? Is this replenishment operation a Pull or a Push system?
Explanation / Answer
Its a push system as the EOQ is less than the SS and Order cost is less than holding cost.
Monthly operations cost =
d Monthly demand 150 D Demand annually 1800 units Annually p Purchase cost 30 $ per unit K Ordering cost 80 $ per order h Holding cost 3.6 $ per unit LT Lead time 30 days Working days 360 days SDW Std Dev of monthly demand 50 LTD Lead time demand 150 Units SLTD Std Dev for lead time 273.8613 units Sigma Std Dev of annual demand 948.6833 SQRT((Lead time std dev^2)*D/LTD) P value for 1 stock out, 98 Z Z value 2.33 712.4423 R So reorder point 712.4423 (LTD+SLTD *Z) EOQ (Sqrt(2*k*D/h) 282.8427 Ans SS Safety stock 562.4423 (R-LTD) AI Average inventory 497.6425 units (EOQ+R)/2 (AI*h) Holding cost 1791.513 $ No of orders 6.363961 times Toc Total ordering cost annualy 509.1169 $ Total orders/EOQ Thc Annual Holding cost 1791.513 $ Tpc Purchasing cost annual 54000 $ TC Total cost 56300.63 $ (Toc+Thc+Tpc) Length of order cycle 56.56854 (Total days/No of orders) 56 daysRelated Questions
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