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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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?

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