Managing Economies of Scale in a Supply Chain Cycle Inventory

Slides:



Advertisements
Similar presentations
Independent Demand Inventory Systems
Advertisements

Statistical Inventory control models I
Determining the Optimal Level of Product Availability
Supply Chain Management
Lecture 5 Decision Analysis Chapter 14.
6 | 1 Copyright © Cengage Learning. All rights reserved. Independent Demand Inventory Materials Management OPS 370.
Inventory Control Chapter 17 2.
Introduction to Management Science
Chapter 17 Inventory Control.
Inventory Control IME 451, Lecture 3.
Inventory Management Chapter 16.
Chapter 11, Part A Inventory Models: Deterministic Demand
Chapter 9 Inventory Management.
Managing Inventory throughout the Supply Chain
Inventory Control Models
1 Review problem #1 Text problem 9 - 6, 7 Weekly sales (in hundreds) of PERT shampoo at the SaveMor drug chain for the past 16 weeks are as follows: Management.
1 Lecture 6 Inventory Management Chapter Types of Inventories  Raw materials & purchased parts  Partially completed goods called work in progress.
Lecture 5 Project Management Chapter 17.
Operations Management Inventory Management Chapter 12 - Part 2
Class 22: Chapter 14: Inventory Planning Independent Demand Case Agenda for Class 22 –Hand Out and explain Diary 2 Packet –Discuss revised course schedule.
Supply Chain Management Lecture 27. Detailed Outline Tuesday April 27Review –Simulation strategy –Formula sheet (available online) –Review final Thursday.
Re-Order Point Problems Set 3: Advanced
INDR 343 Problem Session
Supply Chain Management Lecture 18. Outline Today –Chapter 10 3e: Sections 1, 2 (up to page 273), 6 4e: Sections 1, 2, 3 (up to page 260) Thursday –Finish.
Supply Chain Management Lecture 19. Outline Today –Finish Chapter 10 –Start with Chapter 11 Sections 1, 2, 3, 7, 8 –Skipping 11.2 “Evaluating Safety Inventory.
Managing Economies of Scale in a Supply Chain: Cycle Inventory
Inventory Management for Independent Demand
ISE 216 Question Hour Chapter 5
1 Inventory (Chapter 16) What is Inventory? How Inventory works: two ways of ordering based on three elements Inventory models (to p2) (to p3) (to p4)
CHAPTER 7 Managing Inventories
PowerPoint presentation to accompany Chopra and Meindl Supply Chain Management, 5e Global Edition 1-1 Copyright ©2013 Pearson Education. 1-1 Copyright.
PowerPoint presentation to accompany Chopra and Meindl Supply Chain Management, 5e Global Edition 1-1 Copyright ©2013 Pearson Education. 1-1 Copyright.
Chapter 12: Determining the Optimal Level of Product Availability
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., Table of Contents CD Chapter 18 (Inventory Management with Known Demand) A Case Study—The.
Slides 2 Inventory Management
5-1 ISE 315 – Production Planning, Design and Control Chapter 5 – Inventory Control Subject to Unknown Demand McGraw-Hill/Irwin Copyright © 2005 by The.
1 Slides used in class may be different from slides in student pack Chapter 17 Inventory Control  Inventory System Defined  Inventory Costs  Independent.
1 Inventory Analysis under Uncertainty: Lecture 6 Leadtime and reorder point Uncertainty and its impact Safety stock and service level Cycle inventory,
Contents Introduction
Inventory Management MD707 Operations Management Professor Joy Field.
Independent Demand Inventory Planning CHAPTER FOURTEEN McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
1 1 Slide © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole.
PowerPoint presentation to accompany Chopra and Meindl Supply Chain Management, 5e 1-1 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.
Inventory Management and Risk Pooling (1)
Inventory Models in SC Environment By Debadyuti Das.
Chapter 3. Managing economies of scale in a supply chain: cycle inventory Learning objectives: Balance the appropriate costs to choose the optimal amount.
Chapter 12 – Independent Demand Inventory Management Operations Management by R. Dan Reid & Nada R. Sanders 2 nd Edition © Wiley 2005 PowerPoint Presentation.
MBA 8452 Systems and Operations Management
Operations Research II Course,, September Part 3: Inventory Models Operations Research II Dr. Aref Rashad.
Inventory Management for Independent Demand Chapter 12.
Chapter 11 Managing Inventory throughout the Supply Chain
Northern Illinois University Department of Technology Shun Takai
11-1 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Managing Economies of Scale in a Supply Chain: Cycle Inventory Role of Cycle.
11-1 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. Managing Economies of Scale in a Supply Chain: Cycle Inventory Role of Cycle.
© 2007 Pearson Education 10-1 Chapter 11 Managing Economies of Scale in the Supply Chain: Cycle Inventory Supply Chain Management.
PERSEDIAAN PROBABILISTIK: PERIODIC REVIEW
OPSM 301 Spring 2012 Class 13: Inventory Management
Inventory Models (II) under SC environment
IE 8580 Module 2: Transportation in the Supply Chain
Chapter 3 Supply Chain Drivers and Obstacles
Managing Economies of Scale in a Supply Chain: Cycle Inventory
Chapter 18 Managing Facilitating Goods
Managing Uncertainty in the Supply Chain: Safety Inventory
Chapter 12 Managing Uncertainty in the Supply Chain: Safety Inventory
Random Demand: Fixed Order Quantity
Chapter 12 Determining the Optimal Level of Product Availability
Chapter 14 Sourcing Decisions in a Supply Chain
a1) On average, how long a diskette spend in stock?
Chapter 14 Sourcing Decisions in a Supply Chain
EOQ Inventory Management
Presentation transcript:

Managing Economies of Scale in a Supply Chain Cycle Inventory 11

MARGINAL UNIT QUANTITY DISCOUNT Marginal unit quantity discounts are also referred to as multiblock tariffs. In this case, the pricing schedule contains specified break points q0, q1, ... , qr. It is not the average cost of a unit but the marginal cost of a unit that decreases at a breakpoint (in contrast to the all unit discount scheme). If an order of size q is placed, the first q1 – q0 units are priced at C0, the next q2 – q1 are priced at C1 and so on.

MARGINAL UNIT QUANTITY DISCOUNT The marginal cost per unit varies with the quantity purchased, as shown in Figure 11-4. FIGURE 11-4

MARGINAL UNIT QUANTITY DISCOUNT Faced with such a pricing schedule, the retailer's objective is to decide on a lot size that maximizes profits or, equivalently, minimizes material, order, and holding costs. The solution procedure evaluates the optimal lot size for each marginal price Ci (this forces a lot size between qi and qi + l) and then settles on the lot size that minimizes the overall cost.

MARGINAL UNIT QUANTITY DISCOUNT For each value of i, 0 ≤ i ≤ r, let Vi be the cost of ordering qi units. Define V0 = 0 and Vi for 0 ≤ i ≤ r as follows: For each value of i, 0 ≤ i ≤ r – 1, consider an order of size Q in the range qi to qi + l units; that is, qi + l ≥ Q ≥ qi. The material cost of each order of size Q is given by Vi + ( Q – qi) Ci.

MARGINAL UNIT QUANTITY DISCOUNT The various costs associated with such an order are as follows:

MARGINAL UNIT QUANTITY DISCOUNT The total annual cost is the sum of the three costs and is given by The optimal lot size for this price range is obtained by taking the first derivative of the total cost with respect to the lot size and setting it equal to 0. This results in an optimal lot size for this price range of

MARGINAL UNIT QUANTITY DISCOUNT Observe that the optimal lot size is obtained using a formula very much like the EOQ formula (Equation 11.5), except that the presence of the quantity discount has the effect of raising the fixed cost per order by Vi – qiCi (from S to S + Vi – qiCi).

MARGINAL UNIT QUANTITY DISCOUNT There are three possible cases for Qi: 1. qi ≤ Qi ≤ qi + l 2. Qi < qi 3. Qi > qi + l

MARGINAL UNIT QUANTITY DISCOUNT Example 11-8: Marginal Unit Quantity Discount Let us return to DO from Example 11-7. Assume that the manufacturer uses the following marginal unit discount pricing schedule:

MARGINAL UNIT QUANTITY DISCOUNT Example 11-8: Marginal Unit Quantity Discount This implies that if an order is placed for 7,000 bottles, the first 5,000 are at a unit cost of $3.00, with the remaining 2,000 at a unit cost of $2.96. Evaluate the number of bottles that DO should order in each lot.

MARGINAL UNIT QUANTITY DISCOUNT Example 11-8: Marginal Unit Quantity Discount In this case we have

MARGINAL UNIT QUANTITY DISCOUNT Example 11-8: Marginal Unit Quantity Discount For i = 0, evaluate Q0 (using Equation 11.14) as follows: Because 6,324 > q 1 = 5,000, we evaluate the cost of ordering lots of q 1 = 5,000 (we do not consider lots of 0). The total annual cost of ordering 5,000 bottles per lot is as follows (set 0 = 5,000 and i = 1):

MARGINAL UNIT QUANTITY DISCOUNT Example 11-8: Marginal Unit Quantity Discount Because 6,324 > q1 = 5,000, we evaluate the cost of ordering lots of q1 = 5,000 (we do not consider lots of 0). The total annual cost of ordering 5,000 bottles per lot is as follows (set Q = 5,000 and i = 1):

MARGINAL UNIT QUANTITY DISCOUNT Example 11-8: Marginal Unit Quantity Discount For i = 1, evaluate Q1 using Equation 11.14 as follows: Because 11,028 > q2 = 10,000, we evaluate the cost of ordering lots of q2 = 10,000 (the cost of ordering lots of 5,000 has already been evaluated). The total annual cost of ordering 10,000 bottles per lot is as follows (set 0 = 10,000 and i = 2):

MARGINAL UNIT QUANTITY DISCOUNT Example 11-8: Marginal Unit Quantity Discount Because 11,028 > q2 = 10,000, we evaluate the cost of ordering lots of q2 = 10,000 (the cost of ordering lots of 5,000 has already been evaluated). The total annual cost of ordering 10,000 bottles per lot is as follows (set Q = 10,000 and i = 2):

MARGINAL UNIT QUANTITY DISCOUNT Example 11-8: Marginal Unit Quantity Discount Because $361,780 < $363,900, it is less expensive to order in lots of 10,000 than in lots of 5,000. If the lot size is to be 10,000 units or less, we are better off ordering 10,000 units per lot. Now we investigate the cost of ordering in lots larger than 10,000 units; that is, i = 2. For i = 2, evaluate Q2 using Equation 11.14 as follows:

MARGINAL UNIT QUANTITY DISCOUNT Example 11-8: Marginal Unit Quantity Discount The total annual cost of ordering 16,961 bottles per lot is as follows (set Q = 16,961 and i = 2): DO minimizes its total cost by ordering in lots of 16,961 bottles. This is much larger than the optimal lot size of 6,324 in the case where the manufacturer does not offer any discount. WHY QUANTITY DISCOUNTS?

MARGINAL UNIT QUANTITY DISCOUNT If the fixed cost of ordering is $4, the optimal lot size for DO is 15,755 with the discount compared to a lot size of 1,265 without the discount. This discussion demonstrates that there can be significant order sizes and thus cycle inventory in the absence of any formal fixed ordering costs as long as quantity discounts are offered. In many supply chains, quantity discounts contribute more to cycle inventory than fixed ordering costs. This forces us once again to question the value of quantity discounts in a supply chain.

MARGINAL UNIT QUANTITY DISCOUNT Thus, quantity discounts lead to a significant buildup of cycle inventory in a supply chain. In many supply chains, quantity discounts contribute more to cycle inventory than fixed ordering costs. This forces us once again to question the value of quantity discounts in a supply chain.

Example 11-3: Multiple Products with Lots Ordered and Delivered Independently Best Buy sells three models of computers, the Litepro, the Medpro, and the Heavypro. Annual demands for the three products are DL = 12,000 for the Litepro, DM = 1,200 units for the Medpro, and DH = 120 units for the Heavypro. Each model costs Best Buy $500. A fixed transportation cost of $4,000 is incurred each time an order is delivered. For each model ordered and delivered on the same truck, an additional fixed cost of $1 ,000 is incurred for receiving and storage. Best Buy incurs a holding cost of 20 percent. Evaluate the lot sizes that the Best Buy manager should order if lots for each product are ordered and delivered independently. Also evaluate the annual cost of such a policy.

Example 11-3: Multiple Products with Lots Ordered and Delivered Independently For each model ordered and delivered on the same truck, an additional fixed cost of $1,000 is incurred for receiving and storage. Best Buy incurs a holding cost of 20 percent. Evaluate the lot sizes that the Best Buy manager should order if lots for each product are ordered and delivered independently. Also evaluate the annual cost of such a policy.

Example 11-3: Multiple Products with Lots Ordered and Delivered Independently Demand, DL = 12,000/year, DM = 1,200/year, DH = 120/year Common order cost, S = $4,000 Product-specific order cost, SL = $1,000, SM = $1,000, SH = $1,000 Holding cost, h = 0.2 Unit cost, CL = $500, CM = $500, CH = $500

Example 11-3: Multiple Products with Lots Ordered and Delivered Independently Because each model is ordered and delivered independently, a separate truck delivers each model. Thus, a fixed ordering cost of $5,000 ($4,000 + $1 ,000) is incurred for each product delivery.

Example 11-3: Multiple Products with Lots Ordered and Delivered Independently The optimal ordering policies and resulting costs for the three products (when the three products are ordered independently) are evaluated using the EOQ formula (Equation 1 1.5) and are shown in Table 11-1.

Example 11-3: Multiple Products with Lots Ordered and Delivered Independently Litepro Medpro Heavypro Demand per year 12,000 1,200 120 Fixed cost/order $5,000 Optimal order size 1,095 346 110 Cycle inventory 548 173 55 Annual holding cost $54,772 $17,321 $5,477 Order frequency 11.0/year 3.5/year 1.1/year Annual ordering cost Average flow time 2.4 weeks 7.5 weeks 23.7 weeks Annual cost $109,544 $34,642 $10,954 TABLE 11-1

Example 11-3: Multiple Products with Lots Ordered and Delivered Independently The Litepro model is ordered 11 times a year, the Medpro model is ordered 3.5 times a year, and the Heavypro model is ordered 1.1 times each year. The annual ordering and holding cost Best Buy incurs if the three models are ordered independently turns out to be $155,140.

Example 11-3: Multiple Products with Lots Ordered and Delivered Independently Independent ordering ignores the opportunity to aggregate orders. Thus, the product managers at Best Buy could potentially lower costs by combining orders on a single truck. We next consider the scenario in which all three products are ordered and delivered each time an order is placed.

Example 11-3: Multiple Products with Lots Ordered and Delivered Independently Discussion Problem W03-07: We add Tinypro. Its demand, product specific cost and unit cost are 20,000 units, $1,500 and $300. The holding cost h = 20 percent is same. Work on the Excel Sheet “Example 11-3_add | Chapter 11- examples 3-5_addition.xlsx”. Fill in the blue cell (B21) and the purple cells (C21:F21) beside and the green cells (D23:F23) below "Tinypro". LOT SIZING WITH MULTIPLE PRODUCTS OR CUSTOMERS

Example 11-4: Products Ordered and Delivered Jointly In Example 11-4 we consider the case in which the product managers at Best Buy order all three models each time they place an order (see worksheet Example 11-4). Consider the Best Buy data in Example 11-3. The three product managers have decided to aggregate and order all three models each time they place an order. Evaluate the optimal lot size for each model.

Example 11-4: Products Ordered and Delivered Jointly Because all three models are included in each order, the combined order cost is The optimal order frequency is obtained using Equation 11.7 and is given by

Example 11-4: Products Ordered and Delivered Jointly Thus, if each model is to be included in every order and delivery, the product managers at Best Buy should place 9.75 orders each year. In this case the ordering policies and costs are as shown in Table 11-2.

Example 11-4: Products Ordered and Delivered Jointly Litepro Medpro Heavypro Demand per year (D) 12,000 1,200 120 Order frequency (n∗) 9.75/year Optimal order size (D/n∗) 1,230 123 12.3 Cycle inventory 615 61.5 6.15 Annual holding cost $61,512 $6,151 $615 Average flow time 2.67 weeks TABLE 11-2

Example 11-4: Products Ordered and Delivered Jointly Because 9.75 orders are placed each year and each order costs a total of $7,000, we have The annual ordering and holding cost, across the three sizes, of the aforementioned policy is given by Annual order cost = 9.75 x 7,000 = $68,250 Annual ordering and holding cost = $61,512 + $6,151 + $615 + $68,250 = $136,528

Example 11-4: Products Ordered and Delivered Jointly Observe that the product managers at Best Buy lower the annual cost from $155,140 to $136,528 by ordering all products jointly. This represents a decrease of about 12 percent.

Example 11-4: Products Ordered and Delivered Jointly Discussion Problem W03-08: We add Tinypro. Its demand, product specific cost and unit cost are 20,000 units, $1,500 and $300. The holding cost h = 20 percent is same. Work on the Excel Worksheet “Example 11-4_add | Chapter 11-examples 3-5_addition.xlsx”. Change the blue cell (B17) beside "Litepro". Fill in the grey cell (B22), the purple cells (C22,E22) beside and the green cells (D24:F24) below "Tinypro". (Do not use the old “Joint order cost” (D12) but the new “Joint order cost” (I12).) LOT SIZING WITH MULTIPLE PRODUCTS OR CUSTOMERS

Example 11-4: Products Ordered and Delivered Jointly Because all three models are included in each order, the combined order cost is 𝑆∗=𝑆+𝑠𝐿+𝑠𝑀+𝑠𝐻+𝑠𝑇=$8,500 The optimal order frequency is obtained using Equation 11.7 and is given by 𝑛∗= 12000×100+1200×100+120×100+20000×60 2×8500

Example 11-5: Aggregation with Capacity Constraint In Example 11.5, we consider optimal aggregation of orders or deliveries in the presence of capacity constraints. W.W. Grainger sources from hundreds of suppliers and is considering the aggregation of inbound shipments to lower costs. Truckload shipping costs $500 per truck along with $100 per pickup. Average annual demand from each supplier is 10,000 units. Each unit costs $50 and Grainger incurs a holding cost of 20 percent. What is the optimal order frequency and order size if Grainger decides to aggregate four suppliers per truck? What is the optimal order size and frequency if each truck has a capacity of 2,500 units?

Example 11-5: Aggregation with Capacity Constraint Truckload shipping costs $500 per truck along with $100 per pickup. Average annual demand from each supplier is 10,000 units. Each unit costs $50 and Grainger incurs a holding cost of 20 percent.

Example 11-5: Aggregation with Capacity Constraint What is the optimal order frequency and order size if Grainger decides to aggregate four suppliers per truck? What is the optimal order size and frequency if each truck has a capacity of 2,500 units?

Example 11-5: Aggregation with Capacity Constraint In this case, W.W. Grainger has the following inputs: Demand per product, Di = 10,000 Holding cost, h = 0.2 Unit cost per product, Ci = $50 Common order cost, S = $500 Supplier-specific order cost, si = $100

Example 11-5: Aggregation with Capacity Constraint The combined order cost from four suppliers is given by From Equation 11.8, the optimal order frequency is

Example 11-5: Aggregation with Capacity Constraint It is thus optimal for Grainger to order 14.91 times per year. The annual ordering cost per supplier is

Example 11-5: Aggregation with Capacity Constraint The quantity ordered from each supplier is Q = 10,000/14.91 = 671 units per order. The annual holding cost per supplier is Annual holding cost per supplier

Example 11-5: Aggregation with Capacity Constraint This policy, however, requires a total capacity per truck of 4 x 671 = 2,684 units. Given a truck capacity of 2,500 units, the order frequency must be increased to ensure that the order quantity from each supplier is 2,500/4 = 625.

Example 11-5: Aggregation with Capacity Constraint Thus, W.W. Grainger should increase the order frequency to 10,000/625 = 16. This action will increase the annual order cost per supplier to $3,600 and decrease the annual holding cost per supplier to $3,125.

Example 11-5: Aggregation with Capacity Constraint Discussion Problem W03-09: Change the number of suppliers per truck in Cell B8 from 2 to 6 and see how the quantity order / supplier and the optimal order frequency changes in Cells B22, 23 for the capacity constrained case. Work on the Excel Worksheet “Example 11-5 | Chapter 11-examples 3-5_addition.xlsx”. LOT SIZING WITH MULTIPLE PRODUCTS OR CUSTOMERS

Managing Uncertainty in a Supply Chain Safety Inventory 12 Managing Uncertainty in a Supply Chain Safety Inventory

Evaluating Safety Inventory Given a Replenishment Policy Example 12-1: Evaluating safety inventory given an inventory policy Assume that weekly demand for phones at B&M Computer World is normally distributed, with a mean of 2,500 and a standard deviation of 500. The manufacturer takes two weeks to fill an order placed by the B&M manager. The store manager currently orders 10,000 phones when the inventory on hand drops to 6,000.

Evaluating Safety Inventory Given a Replenishment Policy Example 12-1: Evaluating safety inventory given an inventory policy Evaluate the safety inventory carried by B&M and the average inventory carried by B&M. Also evaluate the average time spent by a phone at B&M.

Evaluating Safety Inventory Given a Replenishment Policy Average demand per week, D = 2,500 Standard deviation of weekly demand, sD = 500 Average lead time for replenishment, L = 2 weeks Reorder point, ROP = 6,000 Average lot size, Q = 10,000 Safety inventory, ss = ROP – DL = 6,000 – 5,000 = 1,000 Cycle inventory = Q/2 = 10,000/2 = 5,000

Evaluating Safety Inventory Given a Replenishment Policy Average inventory = cycle inventory + safety inventory = 5,000 + 1,000 = 6,000 Average flow time = average inventory/throughput = 6,000/2,500 = 2.4 weeks

Evaluating Safety Inventory Given a Replenishment Policy Discussion Problem W04-05: Evaluating safety inventory given an inventory policy Assume that weekly demand for phones at B&M Computer World is normally distributed, with a mean of 2,500 and a standard deviation of 500. The manufacturer takes two weeks to fill an order placed by the B&M manager. The store manager currently orders 10,000 phones when the inventory on hand drops to 6,000.

Evaluating Cycle Service Level Given a Replenishment Policy We now illustrate this evaluation in Example 12- 2 (see worksheet Example 12-2). Example 12-2: Evaluating cycle service level given a replenishment policy Weekly demand for phones at B&M is normally distributed, with a mean of 2,500 and a standard deviation of 500. The replenishment lead time is two weeks.

Evaluating Cycle Service Level Given a Replenishment Policy Example 12-2: Evaluating cycle service level given a replenishment policy Assume that the demand is independent from one week to the next. Evaluate the CSL resulting from a policy of ordering 10,000 phones when there are 6,000 phones in inventory. In this case, we have Q = 10,000, ROP = 6,000, L = 2 weeks D = 2,500/week, sD = 500

Evaluating Cycle Service Level Given a Replenishment Policy Example 12-2: Evaluating cycle service level given a replenishment policy Observe that B&M runs the risk of stocking out during the two weeks between when an order is placed and when the replenishment arrives. Thus, whether a stockout occurs or not depends on the demand during the lead time of two weeks.

Evaluating Cycle Service Level Given a Replenishment Policy Example 12-2: Evaluating cycle service level given a replenishment policy Because demand across time is independent, we use Equation 12.2 to obtain demand during the lead time to be normally distributed with a mean of DL and a standard deviation of 𝜎𝐿, where

Evaluating Cycle Service Level Given a Replenishment Policy Example 12-2: Evaluating cycle service level given a replenishment policy Using Equation 11.4, the CSL is evaluated as CSL = F(ROP, DL, sL) = NORMDIST(ROP, DL, sL, 1) = NORMDIST(6,000, 5,000, 707, 1) = 0.92

Evaluating Cycle Service Level Given a Replenishment Policy Example 12-2: Evaluating cycle service level given a replenishment policy A CSL of 0.92 implies that in 92 percent of the replenishment cycles, B&M supplies all demand from available inventory. In the remaining 8 percent of the cycles, stockouts occur and some demand is not satisfied because of the lack of inventory.

Evaluating Cycle Service Level Given a Replenishment Policy Example 12-2: Evaluating cycle service level given a replenishment policy A CSL of 0.92 implies that in 92 percent of the replenishment cycles, B&M supplies all demand from available inventory. In the remaining 8 percent of the cycles, stockouts occur and some demand is not satisfied because of the lack of inventory.

Evaluating Cycle Service Level Given a Replenishment Policy Discussion Problem W04-06: Evaluating cycle service level given a replenishment policy Weekly demand for phones at B&M is normally distributed, with a mean of 2,500 and a standard deviation of 500. The replenishment lead time is two weeks. Assume that the demand is independent from one week to the next. Evaluate the CSL resulting from a policy of ordering 10,000 phones when there are 6,000 phones in inventory.

EVALUATING SAFETY INVENTORY GIVEN DESIRED CYCLE SERVICE LEVEL Example 12-3: Evaluating safety inventory given a desired cycle service level Weekly demand for Lego at a Wal-Mart store is normally distributed, with a mean of 2,500 boxes and a standard deviation of 500. The replenishment lead time is two weeks. Assuming a continuous-review replenishment policy, evaluate the safety inventory that the store should carry to achieve a CSL of 90 percent.

EVALUATING SAFETY INVENTORY GIVEN DESIRED CYCLE SERVICE LEVEL Example 12-3: Evaluating safety inventory given a desired cycle service level D = 2,500/week, sD = 500, CSL = 0.9, L = 2 weeks

EVALUATING SAFETY INVENTORY GIVEN DESIRED CYCLE SERVICE LEVEL Discussion Problem W04-7: Evaluating safety inventory given a desired cycle service level Weekly demand for Lego at a Wal-Mart store is normally distributed, with a mean of 2,500 boxes and a standard deviation of 500. The replenishment lead time is two weeks. Assuming a continuous-review replenishment policy, evaluate the safety inventory that the store should carry to achieve a CSL of 90 percent.