Sterling Pulp Chemicals (ERCO) in Saskatoon produces chemicals for processing pulp, such as caustic soda. In its maintenance warehouse, it keeps all the spare parts for its equipment as well as supplies such as light bulbs. For inventory control, it uses the Min/Max model which is basically the EOQ/ROP model. Every day, the computer system identifies those stocks that have reached their minimum (ROP) level, and the inventory staff orders those items. For illustration, consider the usage of item #14-46-506: four-foot supersaver fluorescent light bulbs in the first 10 months of 2008: 10, 10, 66, 32, 34, 18, 24, 9, 14 and 48. The forecast for November using Exponential Smoothing with α = 0.3 is 27.48 units, and the standard deviation of monthly demand for these bulbs is 18.84 units. The lead time from that supplier, EECOL Electric, is 14 days, and the unit cost is $1.40. Holding cost rate for Sterling is estimated to be 20 percent of unit cost per year and ordering cost is $1 per order. Assume 30 days in a month. (a) If the service level is to be 97.5%, what will be the reorder point (b) Since this item is not essential, the new warehouse manager suggests using the once a month periodic review supply model. If the 97.5% service level is to be maintained, what will be the model parameters?

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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Sterling Pulp Chemicals (ERCO) in Saskatoon produces chemicals for processing pulp, such as caustic soda. In its maintenance warehouse, it keeps all the spare parts for its equipment as well as supplies such as light bulbs. For inventory control, it uses the Min/Max model which is basically the EOQ/ROP model. Every day, the computer system identifies those stocks that have reached their minimum (ROP) level, and the inventory staff orders those items. For illustration, consider the usage of item #14-46-506: four-foot supersaver fluorescent light bulbs in the first 10 months of 2008: 10, 10, 66, 32, 34, 18, 24, 9, 14 and 48. The forecast for November using Exponential Smoothing with α = 0.3 is 27.48 units, and the standard deviation of monthly demand for these bulbs is 18.84 units. The lead time from that supplier, EECOL Electric, is 14 days, and the unit cost is $1.40. Holding cost rate for Sterling is estimated to be 20 percent of unit cost per year and ordering cost is $1 per order. Assume 30 days in a month.

(a) If the service level is to be 97.5%, what will be the reorder point

(b) Since this item is not essential, the new warehouse manager suggests using the once a month periodic review supply model. If the 97.5% service level is to be maintained, what will be the model parameters?

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