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Description: ATK-Auto obtains one of the critical parts from its sub-constructor located in China. Daily demand at the production plant in Roma is normally distributed, with a mean of 2100 and a standard deviation of 450 units. The target CSL is 95 percent. The c

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

ChapterC: Cases

Section: Chapter Questions

Problem 5.1SC: Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing...

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ATK-Auto obtains one of the critical parts from its sub-constructor located in China. Daily demand at the production plant in Roma is normally distributed, with a mean of 2100 and a standard deviation of 450 units. The target CSL is 95 percent. The company is considering two different modes of transportation from China: Sea or Air. Sea transportation results in a lead time of 30 days and costs $1.5 per part. Air transportation results in a lead time of 4 days and costs $8.50 per part. Each part costs $350 and ATK-Auto uses a holding cost of 25 percent. Given the minimum lot sizes, ATK would order 11,000 parts at a time if using sea transport and 400 parts at a time if using air transport. Assume that ATK pays for the parts when the order is placed.
a. Assuming that ATK follows a continuous review policy, what reorder point and safety inventory should the warehouse aim for when using sea or air transportation?
b. How many days of cycle inventory does ATK carry under each policy?
c. Which policy (sea or air) would you recommend to ATK to minimize total cost (transportation and inventory carrying costs)?
d. Does your answer (found in c) change if ATK pays for the parts when they receive the products at their production plant?

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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