The Maha Cutlery Outlet sells dinner sets.

It provides you the following information:

Maximum demand: 200 per week

Average demand: 160 per week
Minimum demand: 145 per week
Maximum lead time: 2 weeks
Average lead time: 1.5 weeks
Minimum lead time: 1.35 weeks
Re-order quantity per order: 500 dinner sets
Safety stock: 184 dinner sets

Required:  Compute maximum level of stock of Maha Cutlery Outlet using

information.

Solution

Maximum Level of Stock = Reorder level + Reorder quantity – (Minimum usage × Minimu
→ Reorder quantity - (Minimum usage x lead time) ←
= *584 units + 500 units – (145 units × 1.35 days)
= 584 units + 500 units – 196 units
= 1,084 units – 196 units
= 888 units

*Reorder level = (Maximum usage × Maximum lead time) + Safety stock

= (200 units × 2 days) + 184 units
= 400 units + 184 units
= 584 units
A company manufactures wooden chairs. To manufacture one chairs the company needs 2 sq
wood.

Demand:

Maximum demand: 550 chairs per month

Average demand: 510 chairs per month
Minimum demand: 485 chairs per month

Lead time of the supplies:

Maximum lead time: 2.5 months

Average lead time: 2 months
Minimum lead time: 1.75 months

Stock levels:

Safety stock: 600 square feet of wood

Re-order quantity: 496 square feet of wood
Maximum stock level: ?

Required: Compute maximum stock level.

Solution

The maximum usage: 550 Chairs × 2 sq. ft. = 1,100 sq.ft.

The minimum usage: 485 Chairs × 2 sq. ft. = 970 sq. ft.

Maximum level of stock = Re-order level + Re-order quantity – (Minimum usage × Minimum

= *3,350 sq. ft. + 496 sq. ft. – (970 sq. ft. × 1.75 days)
= 3,350 sq. ft. + 496 sq. ft. – 1,698 sq. ft.
= 3,846 sq. ft. – 1,698 sq. ft.
= 2,148 sq. ft.

So the maximum level of wood as raw material that can be stored is 2,148 square feet p

*Reorder level = (Maximum usage × Maximum lead time) + Safety stock

= (1,100 sq. ft. × 2.5 days) + 600 sq. ft
= 2,750 sq. ft. + 600 sq. ft.
= 3,350 sq. ft.
Solution:

EOQ = √2SD/H
2(25000*1500)/9000
91.28

Total Inventory Cost - C0 (D/Q) + (Q/2) (H)

25000(1500/91.28) + (91.28/2) + 9000
419869
* Ordering Cost = 25000
* Carrying Cost = 9000
* Annual Demand = 1500