11 Jul WHAT IS THE SERVICE LEVEL CORRESPONDING TO THE CURRENT INVENTORY POLICY?
The manager of a large warehouse in Boston makes procurement decisions for toys carried by the warehouse. The throughput rate of toys through the warehouse is 2500 units per day. The demand varies randomly with a standard deviation of 500 toys per day. He places an order for 62,500 toys whenever the inventory level falls below 24,000. It takes a fixed 9 days for the order to arrive. The cost of purchasing the toys is $5 per toy. The cost of placing the order is $1,000 per order. The holding cost is 10 percent of the purchase price per lamp per year. Consider 250 working days in a year. What is the size of the cycle inventory associated the current inventory policy? What is the reorder point (ROP) for the current policy? What is the size of the safety stock in the current policy? What is the overall average inventory is for the current policy? What is the standard deviation of the lead time demand? What is the service level corresponding to the current inventory policy? Consider the business scenario from above. Now, He wants to implement an optimal inventory policy with a desired service level of 97.5 percent. All other data remain the same. What order size should he adopt? What reorder point (ROP) should he adopt? What is the annual inventory holding cost for the optimal policy?
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