1. Simkin Hardware

2. Among the many products stocked by the Simkin Hardware Store is the ACE Model 89 Electric Drill. Sales of the drill have been rather low and variable over the last year. Sales of the drill have been rather low and variable over the last year. Even though the sales are not high, the quality of the drill is excellent and the per unit profits are good. Even though the sales are not high, the quality of the drill is excellent and the per unit profits are good. Simkin wants to offer a complete product line; so continued stocking of the ACE 89 is desirable. Simkin wants to offer a complete product line; so continued stocking of the ACE 89 is desirable.

3. Simkin Hardware There has been a rising number of customer complaints that the store is out of drills. Because customers usually have an urgent need for products when they come into the store, in the event of a stockout they go across the street to purchase their desired product from Simkin’s strongest competitor. There has been a rising number of customer complaints that the store is out of drills. Because customers usually have an urgent need for products when they come into the store, in the event of a stockout they go across the street to purchase their desired product from Simkin’s strongest competitor. Lately, Art has ordered 10 drills at a time and reordered when 5 drills remain in stock. But he is very concerned about the high opportunity cost of the stock-outs as well as the rising customer complaints. Another concern is the increased cost of ordering when the ordering quantity is small. Lately, Art has ordered 10 drills at a time and reordered when 5 drills remain in stock. But he is very concerned about the high opportunity cost of the stock-outs as well as the rising customer complaints. Another concern is the increased cost of ordering when the ordering quantity is small.

4. Demand profile Daily DemandFrequencyProbabilityCumulative Probability Random Number 010 120 240 380 430 520 Totals200

5. Demand profile Daily Demand FrequencyProbability Cumulative Probability Random Number 010 10/200 = 0.05 120 20/200 = 0.10 2400.20 3800.40 4300.15 5200.10 Totals2001.00

6. Demand profile Daily Demand FrequencyProbability Cumulative Probability Random Number 010 10/200 = 0.05 0.05 120 20/200 = 0.10 0.15 2400.200.35 3800.400.75 4300.150.90 5200.101.00 Totals2001.00

7. Demand profile Daily Demand FrequencyProbability Cumulative Probability Random Number 010 10/200 = 0.05 0.0501 – 05 120 20/200 = 0.10 0.1506 – 15 2400.200.3516 – 35 3800.400.7536 – 75 4300.150.9076 – 90 5200.101.0091 – 00 Totals2001.00

8. Lead time profile Lead Time FrequencyProbabilityCumulative Probability Random Number 18 220 312 Totals40

9. Lead time profile Lead Time Frequency Probability Cumulative Probability Random Number 18= 8/40 = 0.20 220 = 20/40 = 0.50 312 =12/40 = 0.30 Totals40

10. Lead time profile Lead Time FrequencyProbability Cumulative Probability Random Number 18= 8/40 = 0.20 0.20 220= 20/40 = 0.50 0.70 312=12/40 = 0.30 1.00 Totals40

11. Lead time profile Lead Time FrequencyProbability Cumulative Probability Random Number 18= 8/40 = 0.20 0.20 220= 20/40 = 0.50 0.70 312=12/40 = 0.30 1.00 Totals40 Go to Excel

12. EOQ Model When To Order Reorder Point (ROP) Time Inventory Level Average Inventory (Q*/2) Lead Time Optimal Order Quantity (Q*)

13. What values for Q & R does the EOQ model suggest? What is D – daily demand? What is D – daily demand? Find expected demand Find expected demand What is L – lead time? What is L – lead time? Find expected lead time Find expected lead time What is H? What is H? 0.50 per drill per day 0.50 per drill per day What is S? What is S? $10 per order $10 per order

14. Expected lead time Expected lead time = 0.20 * 1 + 0.50 * 2 + 0.30 * 3 = 2.1 days Lead Time Frequency Probability 180.20 2200.50 3120.30 Totals40

15. Expected demand Daily Demand FrequencyProbability 0100.05 1200.10 2400.20 3800.40 4300.15 5200.10 Totals2001.00 Expected demand = 0.05 * 0 + 0.10 * 1 + 0.20 * 2 + 0.40 * 3 + 0.15 * 4 + 0.10 * 5 = 2.8 drills

16. What values for Q & R does the EOQ model suggest?

17. Simulate OptionQR 1105 2 3 4 5