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Q:
Because service firms do not inventory their output, pure chase strategy is not appropriate.
Q:
Advertising and promotion are methods of manipulating product or service supply in aggregate planning.
Q:
The use of part-time workers as an aggregate planning option may be less costly than using full-time workers, but may also reduce quality levels.
Q:
One motive for using demand-influencing aggregate planning options is to create uses for excess capacity within an organization.
Q:
In aggregate planning, one of the adjustable elements of capacity is the extent of subcontracting.
Q:
In aggregate planning, the amount of overtime and the size of the work force are both adjustable elements of capacity.
Q:
The strategies of aggregate planning are broadly divided into demand options and capacity options.
Q:
One of the demand options of aggregate planning is to vary the workforce by hiring or layoffs.
Q:
One question that operations managers must ask when generating an aggregate plan is what factors are likely to influence demand and by how much.
Q:
Disaggregation is the process of breaking the aggregate plan into greater detail; one example of this detail is the Master Production Schedule.
Q:
The aggregate planning process usually includes expediting and dispatching of individual products.
Q:
Plans for new product development generally fall within the scope of aggregate planning.
Q:
One of the four things needed for aggregate planning is a logical overall unit for measuring sales and output.
Q:
Aggregate planning in manufacturing ties organizational strategic goals to a production plan.
Q:
The only objective of aggregate planning is to minimize the cost of matching capacity to demand over the planning period.
Q:
Aggregate planning occurs over the medium or intermediate future of 3 to 18 months.
Q:
A product has a reorder point of 110 units, and is ordered four times a year. The following table shows the historical distribution of demand values observed during the reorder period. Demand
Probability 100
.3 110
.4 120
.2 130
.1 Managers have noted that stockouts occur 30 percent of the time with this policy, and question whether a change in inventory policy, to include some safety stock, might be an improvement. The managers realize that any safety stock would increase the service level, but are worried about the increased costs of carrying the safety stock. Currently, stockouts are valued at $20 per unit per occurrence, while inventory carrying costs are $10 per unit per year. What is your advice? Do higher levels of safety stock add to total costs, or not? What level of safety stock is best?
Q:
Answer: ROP = D u2219 L + z u2219 u03c3d u2219 = 20 u2219 25 + 1.65 u2219 3 u2219 = 500 + 24.75
Q:
a. What is the reorder point if there is no safety stock?
b. What is the reorder point if the service level is 80 percent?
c. How much more safety stock is required if the service level is raised from 80 percent to 90 percent?
Answer: This problem requires formula 12-15, since demand is variable but lead time is constant.
Q:
a. What safety stock provides a 50% service level?
b. What safety stock provides a 90% service level?
c. What safety stock provides a 99% service level?
Answer: Standard deviation during lead time is 20 u2219 = 40 units. Z is 0 for 50% service level, 1.29 for 90%, and 2.33 for 99%. The resulting safety stocks are 0, 51.6, and 93.2.
Q:
a. What safety stock is appropriate for the firm?
b. What is the reorder point?
Answer: SS = 0.67 u2219 15 u2219 = 24.6; ROP = 150 6 + 24.6 = 924.6
Q:
The Winfield Distributing Company has maintained an 80% service level policy for inventory of string trimmers. Mean demand during the reorder period is 170 trimmers, and the standard deviation is 60 trimmers. The annual cost of carrying one trimmer in inventory is $6. The area sales people have recently told Winfield's management that they could expect a $400 improvement in profit (based on current figures of cost per trimmer) if the service level were increased to 99%. Is it worthwhile for Winfield to make this change?
Q:
Demand for ice cream at the Ouachita Dairy can be approximated by a normal distribution with a mean of 47 gallons per day and a standard deviation of 8 gallons per day. The new management desires a service level of 95%. Lead time is four days; the dairy is open seven days a week. What reorder point would be consistent with the desired service level?
Q:
Huckaby Motor Services, Inc. rebuilds small electrical items such as motors, alternators, and transformers, all using a certain type of copper wire. The firm's demand for this wire is approximately normal, averaging 20 spools per week, with a standard deviation of 6 spools per week. Cost per spool is $24; ordering costs are $25 per order; inventory handling cost is $4.00 per spool per year. Acquisition lead time is four weeks. The company works 50, 5-day weeks per year.
a. What is the optimal size of an order, if minimization of inventory system cost is the objective?
b. What are the safety stock and reorder point if the desired service level is 90%?
Q:
Holstein Computing manufactures an inexpensive audio card (Audio Max) for assembly into several models of its microcomputers. The annual demand for this part is 100,000 units. The annual inventory carrying cost is $5 per unit and the cost of preparing an order and making production setup for the order is $750. The company operates 250 days per year. The machine used to manufacture this part has a production rate of 2000 units per day.
a. Calculate the optimum lot size.
b. How many lots are produced in a year?
c. What is the average inventory for Audio Max?
d. What is the annual cost of preparing the orders and making the setups for Audio Max?
Q:
Louisiana Specialty Foods can produce their famous meat pies at a rate of 1650 cases of 48 pies each per day. The firm distributes the pies to regional stores and restaurants at a steady rate of 250 cases per day. The cost of setup, cleanup, idle time in transition from other products to pies, etc., is $320. Annual holding costs are $11.50 per case. Assume 250 days per year.
a. Determine the optimum production run.
b. Determine the number of production runs per year.
c. Determine maximum inventory.
d. Determine total inventory-related (setup and carrying) costs per year.
Q:
A toy manufacturer makes its own wind-up motors, which are then put into its toys. While the toy manufacturing process is continuous, the motors are intermittent flow. Data on the manufacture of the motors appears below.
Annual demand (D) = 50,000 units Daily subassembly production rate = 1,000
Setup cost (S) = $85 per batch Daily subassembly usage rate = 200
Carrying cost = $.20 per unit per year
a. To minimize cost, how large should each batch of subassemblies be?
b. Approximately how many days are required to produce a batch?
c. How long is a complete cycle?
d. What is the average inventory for this problem?
e. What is the total inventory cost (rounded to nearest dollar) of the optimal behavior in this problem?
Q:
Given the following data: D=65,000 units per year, S = $120 per setup, P = $5 per unit, and I = 25% per year, calculate the EOQ and calculate annual costs following EOQ behavior.
Q:
The Rushton Trash Company stocks, among many other products, a certain container, each of which occupies four square feet of warehouse space. The warehouse space currently available for storing this product is limited to 600 square feet. Demand for the product is 15,000 units per year. Holding costs are $4 per container per year; Ordering costs are $5 per order.
a. What is the cost-minimizing order quantity decision for Rushton?
b. What is the total inventory-related cost of this decision?
c. What is the total inventory-related cost of managing the inventory of this product, when the limited amount of warehouse space is taken into account?
d. What would the firm be willing to pay for additional warehouse space?
Q:
A printing company estimates that it will require 1,000 reams of a certain type of paper in a given period. The cost of carrying one unit in inventory for that period is 50 cents. 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 $20.00 per trip. Treating this cost as the order cost, what is the optimum number of reams to buy at one time? How many times should lots of this size be bought during this period? What is the minimum cost of maintaining inventory on this item for the period? Of this total cost, how much is carrying cost and how much is ordering cost?
Q:
A firm that makes electronic circuits has been ordering a certain raw material 250 ounces at a time. The firm estimates that carrying cost is 30% per year, and that ordering cost is about $20 per order. The current price of the ingredient is $200 per ounce. The assumptions of the basic EOQ model are thought to apply. For what value of annual demand is their action optimal?
Q:
The soft goods department of a large department store sells 175 units per month of a certain large bath towel. The unit cost of a towel to the store is $2.50 and the cost of placing an order has been estimated to be $12.00. The store uses an inventory carrying charge of 27% per year. Determine the optimal order quantity, order frequency, and the annual cost of inventory management. If, through automation of the purchasing process, the ordering cost can be cut to $4.00, what will be the new economic order quantity, order frequency, and annual inventory management cost? Explain these results.
Q:
CentralUniversity uses $123,000 of a particular toner cartridge for laser printers in the student computer labs each year. The purchasing director of the university estimates the ordering cost at $45 and thinks that the university can hold this type of inventory at an annual storage cost of 22% of the purchase price. How many months' supply should the purchasing director order at one time to minimize the total annual cost of purchasing and carrying?
Q:
The new office supply discounter, Paper Clips, Etc. (PCE), sells a certain type of ergonomically correct office chair which costs $300. The annual holding cost rate is 40%, annual demand is 900, and the order cost is $20 per order. The lead time is 4 days. Because demand is variable (standard deviation of daily demand is 2.4 chairs), PCE has decided to establish a customer service level of 90%. The store is open 300 days per year.
a. What is the optimal order quantity?
b. What is the safety stock?
c. What is the reorder point?
Q:
The annual demand, ordering cost, and the inventory carrying cost rate for a certain item are D = 600 units, S = $20/order and I = 30% of item price. Price is established by the following quantity discount schedule. What should the order quantity be in order to minimize the total annual cost? Quantity
1 to 49
50 to 249
250 and up Price
$5.00 per unit
$4.50 per unit
$4.10 per unit
Q:
Thomas' Bike Shop stocks a high volume item that has a normally distributed demand during the reorder period. The average daily demand is 70 units, the lead time is 4 days, and the standard deviation of demand during the reorder period is 15.
a. How much safety stock provides a 95% service level to Thomas?
b. What should the reorder point be?
Q:
Perform an ABC analysis on the following set of products. Item
Annual Demand
Unit Cost A211
1200
$9 B390
100
$90 C003
4500
$6 D100
400
$150 E707
35
$2000 F660
250
$120 G473
1000
$90 H921
100
$75
Q:
Your company has compiled the following data on the small set of products that comprise the specialty repair parts division. Perform ABC analysis on the data. Which products do you suggest the firm keep the tightest control over? Explain. SKU
Annual Demand
Unit Cost R11
250
$250 S22
75
$90 T33
20
$60 U44
150
$150 V55
100
$75
Q:
Montegut Manufacturing produces a product for which the annual demand is 10,000 units. Production averages 100 per day, while demand is 40 per day. Holding costs are $2.00 per unit per year; set-up costs $200.00. If they wish to produce this product in economic batches, what size batch should be used? What is the maximum inventory level? How many order cycles are there per year? How much does management of this good in inventory cost the firm each year?
Q:
Lead time for one of Montegut Manufacturing's fastest moving products is 4 days. Demand during this period averages 100 units per day. What would be an appropriate re-order point?
Q:
Describe the difference between a fixed-quantity and a fixed-period inventory system?
Q:
What is a fixed-period system?
Q:
How would a firm go about determining service level?
Q:
What happens to the cost of the inventory policy when the service level increases?
Q:
Define service level.
Q:
What is a reorder point?
Q:
How sensitive is the EOQ to variations in demand or costs?
Q:
Assume two inventory problems with identical demand, holding cost, and setup cost. In one, goods arrive instantly, but in the other goods arrive at a measurable rate. Which of these problems will have the larger optimal order quantity? Why?
Q:
What are the assumptions of the EOQ model?
Q:
In the basic economic order quantity model and in the production order quantity model, optimal behavior occurs where annual setup costs equal annual holding costs. Is this a coincidence, or a fundamental element of these models? Answer in a well-constructed paragraph.
Q:
In some inventory models, the optimal behavior occurs where ordering costs and carrying costs are equal to one another. Provide an example of a model where this "rule" does not hold; explain how the model's results are optimal anyway.
Q:
Compare the assumptions of the production order quantity model to those of the basic EOQ model.
Q:
List the typical cost components that constitute ordering costs in inventory systems.
Q:
Describe the costs associated with ordering and maintaining inventory.
Q:
List the typical components that constitute inventory holding or carrying costs.
Q:
Several inventory models assume "independent demand." Explain what that term means and why the assumption is important.
Q:
When is a good time for cycle-counting personnel to audit a particular item?
Q:
What are the techniques to control service inventories?
Q:
Define shrinkage. List three or more examples of shrinkage.
Q:
What is cycle counting?
Q:
Describe ABC inventory analysis in one sentence. What are some policies that may be based upon the results of an ABC analysis?
Q:
What is MRO an acronym for? What is the function of MRO inventories?
Q:
List the four types of inventory.
Q:
What are the main reasons that an organization has inventory?
Q:
Explain what "decoupling" means in the context of inventory management.
Q:
A(n) __________ system triggers inventory ordering on a uniform time frequency.
Q:
When demand is constant and lead time is variable, safety stock computation requires three inputs: the value of Z, __________, and the standard deviation of lead time.
Q:
If a safety stock problem includes parameters for average daily demand, standard deviation of demand, and lead time, then __________ is variable and __________ is constant.
Q:
__________ is the complement of the probability of a stockout.
Q:
In a quantity discount problem, if the savings in product cost is smaller than the increase in the sum of setup cost and holding cost, the discount should be __________.
Q:
__________ is extra stock that is carried to serve as a buffer.
Q:
In the production order quantity model, the fraction of inventory that is used immediately and not stored is represented by the ratio of __________.
Q:
A(n) __________ model gives satisfactory answers even with substantial variations in its parameters.
Q:
For a given level of demand, annual holding cost is larger as the order quantity is __________.
Q:
In an economic order quantity problem, the total annual cost curve is at its __________ where holding costs equal setup costs.
Q:
__________ is the time between placement and receipt of an order.
Q:
__________ is a continuing reconciliation of inventory with inventory records.
Q:
__________ is a method for dividing on-hand inventory into three classifications based on annual dollar volume.
Q:
__________ inventory is material that is usually purchased, but has yet to enter the manufacturing process.
Q:
Inventory that separates various parts of the production process performs a __________ function.