A printing company estimates that it will require 36 reams of a certain type of
ID: 421567 • Letter: A
Question
A printing company estimates that it will require 36 reams of a certain type of paper per day. The cost of carrying one unit in inventory for a year is $2.5 (holding cost). The company buys the paper from a wholesaler in the same town, sending its own truck to pick up the orders at a fixed cost of S50.00 per trip. Treating this cost as the order cost and assume that the company works for 365 days throughout the year. 1. What is annual demand for the ream of paper What is the optimum size order quantity for the ream of paper What is the reorder point based on the inventory level for this product? Assume that a purchase usually takes two weeks to arrive Is such an inventory management considered to be based on dependant demand? Why? Discuss two limitation of this approach There are two main approaches in forecasting (or analyse data). Suggest one of them and briefly discuss its advantages. 2. 3. 4. 5. 6.Explanation / Answer
1. Annual demand for reams =36x365 = 13140
2. EOQ = [ 2 xdeamd per year x ordering cost / holding cost per unit per year]1/2 =
[ 2x13140x50/ 2.5]1/2 = 724.98 =725
3. ROP = demand during lead time
= 2x 7 x 36 = 504
4. This type of inventory management is related to dependant demand, because the item in demand is an intermediate product ( reams), the demand of which depends on other processes which consume it.
5. This type of inventory management system assumes the ideal conditions where demand as well as the supply have no variability and supply is never delayed. One of the major drawback is the risk of stockout in case of a delayed supply because there is no safety stock. Other is the risk of process being infeasible in case demand falls, maybe because of digitisation and reduction in the use of paper.
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