1. To analyze this situation, note that an ordering strategy should create a zero-inventory policy for both items: both items should have zero inventory at your DC when the next shipment arrives. So, if we order every H weeks, how many items of product 101 should be included in the order? How many items of product 205? 2. The previous part should motivate the idea of creating a blended single product for the analysis. This blended product has a total demand per week of 200 (from product 101) plus 100 (from product 205) = 300 units per week. Let d = 300 be this total demand rate. For any order then of size 7, two-thirds of that order should be for 101 and one-third of the order for 205. This should help us think about the implied facility inventory costs for each unit of blended product: we can simply blend the cost parameters since every unit ordered is essentially 3 of product 101 and 13 of product 205. Calculate the following blended costs: • Blended storage cost per year, 5 = Blended carrying cost per year rʊ = $101 +$205 r (3³ ³ / 101 + 1/3 205) 3. Calculate the total blended optimal order quantity, ā, using EOQ principles. To do so, think about what fixed cost is charged per order? And, what are the inventory cost parameters that are appropriate? If you order q items, how many are of product 101 and how many are of product 205? Calculate how much space inside a single truckload is required by this order of size 7.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Related questions

Question

In this problem, your company is a distributor of products. You serve as an inventory
manager for the regional distribution center (DC) here in the Atlanta area. In this role,
you schedule the purchase and shipment of products from various suppliers inbound to the
Atlanta DC. Once you receive the products at the DC, they are stored in inventory until
they are picked, packed, and shipped outbound to your company’s downstream customers
in response to orders.
For each of your products, you currently use a single, dedicated supplier. Each of your
suppliers ships their products to you from their facility using trucking services, and they
provide you with choices of different LTL or truckload trucking carriers depending on your
shipment size.
Consider managing inventory now for product 101 produced by Supplier A. Currently,
you face demand for product 101 of about 200 units per week. Each unit of product 101
has a purchase cost p of $500 and you decide to value your inventory at the slightly higher
rate of $550 (v). As is typical, you are required to pay for products when you order. For
inventory carrying cost (either in-transit or at your facility), you assume an annual carrying
cost rate r = 18% per year; this rate includes your capital cost but also components that
model product quality loss over time, risk of theft, and risk of obsolescence. You estimate
that storing one item of product 101 in your DC requires an equivalent rent (storage cost)
of s = $10 per unit per year.

Question 3
It turns out that Supplier A is also the source for another product that you distribute, prod-
uct 205. This gives you an idea: if we order 101 and 205 simultaneously, we can pack these
units into the same truckloads to reduce cost.
Demand for product 205 is 100 units per week. Each unit has a lower purchase cost of
$200 per unit which you value at v = $220. Suppose that a carrying-cost rate of r = 18%

per year is still appropriate for this product, but that product 205 requires a smaller rent
cost of $4 per unit per year.
If you order the products jointly, your supplier will charge a $200 order processing cost
(adding the two order processing costs separately per order), but the truckload cost remains
$800 per truckload regardless of the mix between 101 and 205 in each load. Because product
205 is smaller, a truckload can hold 1,400 units of product 205. Recall that a truckload can
hold 700 units of product 101.