Mike and Kelly Kyson were two small city teachers who happen to fall in love and get married. Soonafter they were married, children were on the way. Kelly was always involved in crafts and wanted tospend time with her children, so she figured that she could stay home and make leather handbags andpurses to earn extra money. After doing this for a while, she grew tired of dealing with the large leathersuppliers and jobbers-who were giving heavy discounts to large customers, but were charging nearretail prices to mid and small business. She decided to directly source the leather herself. To get thevolumes necessary to buy directly from the leather tanners and processors, Kelly needed to buy inhigher volumes. Initially, she would order large leather shipments and sell-off the excess on EBay. It didnot take long for her to realize that she was making more money selling leather than making and sellinghandbags and purses. Within a couple of years Kelly and Mike became the largest leather suppliers onEBay. They decided to expand their operations and start-up a website and call their new company theLeather Hide StoreAfter getting the Leather Hide Store up and running, the Kysons expect to sell around 7280 hides peryear. On top of the web business, the Kysons plan to keep selling on EBay, but they plan to reserve theirEBay business to use it to get rid of overstocks or sell special orders.Leather Hide Store¹Leather is a natural product and is sold typically as full or half hides. The average hide covers 50 squarefeet; however, hides can range from 35-to-75 square feet. On average the Kysons pay $125 for thehides, including materials overhead and labor. The inbound freight cost is $8.00; labor to receive eachhide and maintain it in inventory cost $5, plus $1 per month. Storage space cost $0.05/sq. ft. permonth. The Kysons have decent credit and are able to borrow at and APR of 6%. The Kyson's figure thatinsurance per hide runs about $0.25 per hide; taxes run about $2 per $100 value with a 30% tax rate;loss and damage runs about 4% per year; obsolescence runs 2% per year.While Mike and Kelly decide on the colors and quantity of hides, the actual ordering is Janet'sresponsibility. Janet is their office manager. Janet earns around $700 per week (including salary andfringes) and spends half of her time processing orders and processes an average 4 orders per week. TheKysons would like the ordering process to take less of Kelly's time, so that she could spend more timedoing other tasks.After operating their website for two months the Kysons hired you as a consultant to stream-line theirordering and inventory process. Over the most recent 4 week period, the Leather Hide Store had thefollowing daily demand for hides:MondayTuesdayWednesdayThursdayFridayWeek-1 Week-2 Week-3323233272126293020333130242921Week-41835283427Over the same 4 week period, they had 16 orders with the following order cycle times: 5, 3, 2, 7, 3, 3, 4,3, 7, 6, 5, 4, 3, 3, 3, 2, and 5 days. Besides needing help with their inventory, the Kysons want to know how to plan and prioritize theirinventory requirements. Unfortunately, the Leather Hide Store does not have demand data per dayaccording to product number or name; however, they do have the following demand information overthe first year.ProductNumberES1ES2ES3ES6ES7ES10ES13ES14ES18ES19ES20ES26ES31Product NameIndigoBlack CatBlack MagicBlack PebbleTrue RedRoasted Red PepperTrue BurgundyPure SandPolo BrownCheyenneHarvestSoft WhiteSoft CreamCase QuestionsUnitsSold624260PriceperUnit$245.70$167.401282 $206.70312 $167.40520 $245.70312 $152.00468$171.60104 $175.501560$198.00412$247.00936 $222.30208 $202.80282 $179.40Netrevenuesper Unit$67.76$23.16$35.50$16.42$54.28$19.90$15.23$16.44$20.06$79.85$55.15$34.30$23.031. Determine how many hides the Leather Hide Store should order and how many orders per yearthey should place, and compare this to their current method. To do this, you will need toaddressa. What is the inventory-carrying rate?b. What is the current number of orders per year if Janet is making 4 orders per week?C. What is the economic order quantityd. What will be the number of orders per year based upon the economic order quantitye. What is the reorder point2. Using Pareto's Law, develop an inventory classification system that would allow for the planningand prioritizing of inventory requirements. Make sure to explain your reasoning and supportyour solutions.

Mike and Kelly Kyson were two small city teachers who happen to fall in love and get married. Soon after they were married, children were on the way. Kelly was always involved in crafts and wanted to spend time with her children, so she figured that she could stay home and make leather handbags and purses to earn extra money. After doing this for a while, she grew tired of dealing with the large leather suppliers and jobbers-who were giving heavy discounts to large customers, but were charging near retail prices to mid and small business. She decided to directly source the leather herself. To get the volumes necessary to buy directly from the leather tanners and processors, Kelly needed to buy in higher volumes. Initially, she would order large leather shipments and sell-off the excess on EBay. It did not take long for her to realize that she was making more money selling leather than making and selling handbags and purses. Within a couple of years Kelly and Mike became the largest leather suppliers on EBay. They decided to expand their operations and start-up a website and call their new company the Leather Hide Store After getting the Leather Hide Store up and running, the Kysons expect to sell around 7280 hides per year. On top of the web business, the Kysons plan to keep selling on EBay, but they plan to reserve their EBay business to use it to get rid of overstocks or sell special orders. Leather is a natural product and is sold typically as full or half hides. The average hide covers 50 square feet; however, hides can range from 35-to-75 square feet. On average the Kysons pay $125 for the hides, including materials overhead and labor. The inbound freight cost is $8.00; labor to receive each hide and maintain it in inventory cost $5, plus $1 per month. Storage space cost $0.05/sq. ft. per month. The Kysons have decent credit and are able to borrow at and APR of 6%. The Kyson's figure that insurance per hide runs about $0.25 per hide; taxes run about $2 per $100 value with a 30% tax rate; loss and damage runs about 4% per year; obsolescence runs 2% per year.