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Chapter 6 Inventory Controls Example 1 Paul Peterson is the inventory manager for Office Supplies, Inc., a large office supply warehouse. The annual demand for paper punches is 20,000 units. The ordering cost is $100 per order, and the carrying cost is $5 per unit per year. What is the economic order quantity? How many orders should he place? What is the total cost?

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ISAT 645 / CMPS 591 Example 2 Paul Peterson is considering manufacturing hole-punch devices. The annual demand is 20,000 units. The setup cost is $100 per order, and the carrying cost is $5 per unit per year. The demand rate is 100 units per day and the production rate is 150 units per day. What is the most economic production size? How long does each production run last? How many production runs should have in one year?

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Example 3 Paul Peterson has found a supplier of hole punches that offers quantity discounts. The annual demand is 20,000 units, the ordering cost is $100 per order, and the carrying cost is 0.5 of the unit price. For quantities that vary from 0 to 1,999, the unit price is $10. The price is $9.98 for quantities that vary from 2,000 to 3,999 units and $9.96 for quantities that vary from 4,000 to 10,000 units. Should he take the quantity discount?

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Example 4 Steve Handel has observed the following demand over the lead time for a product Reorder PointNumber of unitsProbability ROP 30 40 50 60 70 0.1 0.2 0.3 0.2 1.0

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Example 4 -- Contd The carrying cost is $30 per unit per year., and the stockout cost is $50 per unit per stockout. Two orders are placed per year. Given this information, Steve would like to determine the best safety stock policy.

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Example 5 The Hinsdale Company carries an inventory that has a normally distributed demand during the reorder period. The mean demand is 350 units and the standard deviation is 10. Hinsdale wants to follow a policy that results stockouts occurring only 2% of the time. How much safety stock should be maintained?

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Example 6 Kimberly Caller is in charge of four inventory items. The inventory demand and sales price of four inventory items. The inventory demand and sales price for each item is summarized in the following table. Using ABC analysis, how should these inventory items be controlled?

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Demand Price Item 1 20,000 $10.00 Item 2 8,000 100.00 Item 3 7,000 5.00 Item 4 200 5.00

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