After graduation, you decide to go into a partnership in an office supply store

ID: 404062 • Letter: A

Question

After graduation, you decide to go into a partnership in an office supply store that has existed for a number of years.

Walking through through the store and stockrooms, you find a great discrepancy in service levels.

Some spaces and bins for items are completely empty ; others have supplies that are covered with dust and have obviously

been there a long time. You decide to take on the project of establishing consistent levels of inventory to meet customer demands.

Most of your supplies are purchased from just a few distributors that call on your store once every two weeks.

You choose, as your first item of study, computer printer paper. You examine the sales records and purchase orders and find

that demand for the past 12 months was 5,000 boxes. Using your calculator you sample some days' demands and estimate

that the standard deviation of daily demand is 10 boxes. You also search out these figures :

- cost per box of paper = $11

- desired service probability = 98%

- store is open every day

- salesperson visits every two weeks

- delivery time following visit is three days

Using your procedure, how many boxes of paper would be ordered if, on the day the salesperson calls, 60 boxes are on hand?

T = 3 weeks = 21 days

L = 3 days

SD(d) = 10

SD of T+ L (X)= ?(T + L) d2 = ?(24)(100) = 48.98

Daily demand(D) = 5000/365 = 13. 69 units

Inventary = 60 units

The z value for P = 0.98 is 2.05.

The quantity to order, then, is

Q = D(T+L) + zX - I = 13.69(24) + 2.05(49.98) - 60 = 328.56 + 102.45 - 60

= 371 units

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