1. Lab # 7: Safety Stock Product Cycling
OMG 402
Lab # 7:
Safety Stock
Product Cycling

2. Inventory Policies Extend the EOQ to more realistic applications
demand is no longer constant
Take into account production
product cycling

3. Problem #1: Fashion Statement
(a) Optimal number of coats
Assume from now on that Natalie buys the number of coats suggested above
Why is this a Newsboy-type problem?
Pr{d < Q} = marginal profit /(marginal cost + marginal profit)

4. Natalie’s Fashion (b) Probability that coats sell out
Probability that coats do not sell out

5. Natalie’s Statement
(c) Expected number of coats sold GIVEN THAT coats do not sell out
(d) Expected profit
What is the distribution of number of coats sold GIVEN THAT coats do not sell out ?

6. Problem #2: Cat Lovers Revisited
(a) Does EOQ change? Why or why not?
(b) How many orders per year do they place (on average)? Has this changed from the midterm setup?

7. More Cat Lovers (c) Statistical gyrations about lead time demand.
Expected:
Standard deviation:
Why are we doing this?

8. Meow (d) Calculations i. Safety stock ii. Reorder point
(e) How many stockouts per year does this imply?
But, what does it all really mean, anyway?
Additionally, how do you recognize a Safety Stock problem? R SS
R+Q t

9. Supply Chain difficulties
(f) Supplier now cannot guarantee a fixed lead time. Must now take into account the variation in lead time.
What effect does it have on demand during lead time?
What’s the new safety stock level?
How much more does it cost?

10. Other Inventory Policies
The order-point order-quantity we’ve been using is a “continuous review” policy
Can also use “periodic review” policies
Orders only placed once a month for example
“(S,s)” policy
Base Stock system

11. Problem #3: Product Cycling for Paint
What’s the big issue we need to address under this situation?
What are the components of the problem?
What are the key issues and tradeoffs?

12. Paint
(a) The answer sheet provides two different methods for finding the cycle time:
What’s the difference
Is there a situation where one of them can’t be used?
(b) Do the algebra to find the new setup time:
Can use either of the two formulas

13. Azur Paint (b) Maximum amount of paint in inventory?
(c) Average amount of paint in inventory? t

14. All Paints (d) Now calculate the average inventory level for all paint
Use spreadsheet
Add it up