168 Supply Chain Engineering: Models ana pp y you have gathered some data from t

Question

168 Supply Chain Engineering: Models ana pp y you have gathered some data from the store managers and with a sin- regional DC managers To begin understanding the stocking processes, you start gle stock-keeping unit (SKU) at a single retail outlet, a 19-in. puter monitor that is sold at BigBuy's largest store in Raleigh, NC. The data you have collected indicates the following: Average demand for this SKU is about 5 units per day, which equates its per year on BigBuy's operating schedule of 360 days per * to 1800 un year. . The DC manager indicates that the DC's operating policy specifies next-day fulfillment for all orders placed by retail outlets prior to 6 p.m. on any given day The cost of placing a replenishment order at the retail store is esti- mated to be $6.25, which covers various administrative functions like entering the day's orders on the Intranet-based ordering system and receiving daily shipments, sorting them, and stocking them in the store room. · BigBuy's corporate accounting standards specify a 25% inventory holding cost rate for all retail outlets. The cost (to BigBuy-ie, cost on its accounting books) of this 19-in. LCD monitor is $100. Since this is a relatively fast-moving item at this store, the current replenishment policy calls for daily (on average) replenishments (ie, . an order quantity of 5 units). replenishment policy? needs to change for daily replenishments to be optimal? a. Is this a good replenishment policy? What is the annual cost of this b. Is the current replenishment policy optimal? If so, why? If not, what 3.11) Continuing the scenario described in Question 3.10 earlier, you decide to gather additional data to further explore inventory management processes and procedures at the Raleigh BigBuy store. First, you find that daily demand is, as one would suspect, not constant. The data you gather indicates that mean daily demand is 5 monitors, with a stan- dard deviation of 1.5 monitors, approximately following a normal distribution. a. Assuming that the DC is able to consistently meet its "next-day" policy, what should the reorder point be in a continuous-review (Q, R) inventory system at the BigBuy store in order to achieve a 90%

Explanation / Answer

With the current system:

This is not optimal as:

By EOQ model

Part 3.11:

Current Q 5 AI Average inventory 2.5 (AI*h) Holding cost 62.5 units No of orders 360 $ Toc Total ordering cost annualy 2250 times Thc Annual Holding cost 62.5 $ Tpc Purchasing cost annual 180000 $ TC Total cost 182312.5 $

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