Inventory Issues and Reorder Point
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The demand for barbeque grills has been fairly large in the past several years, and Morrison's Home Supplies, Inc., usually orders new barbeque grills five times a year. It is estimated that the ordering cost is $60 per order. The carrying cost is $10 per grill per year. The lead-time is 12 working days. Furthermore, Morrison's Home Supplies, Inc., has estimated that the stockout cost is $50 per unit. The reorder point is 650 units. Although the demand each year is high, it varies considerably. The demand during the lead-time appears in the following table.
Demand During Lead Time Probability
700 .1
750 .1
800 .2
850 .3
900 .2
950 .1
a. What is the expected cost when the reorder point is 800?
b. What reorder point should Morrison's Home Supplies, Inc., choose to minimize the expect cost.
c. How much safety stock should Morrison's Home Supplies, Inc., maintain?
d. What is the annual stock-out cost when demand is 800 and the reorder point is 700?
e. What is the annual carrying cost when demand is 800 and the reorder point is 900?
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Solution Summary
This solution shows step-by-step calculations to calculate the expected cost, reorder point, safety stock, annual stock-out cost and annual carrying cost at varying reorder points. All workings are shown with brief explanations.
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6. The demand for barbeque grills has been fairly large in the past several years, and Morrison's Home Supplies, Inc., usually orders new barbeque grills five times a year. It is estimated that the ordering cost is $60 per order. The carrying cost is $10 per grill per year. The lead-time is 12 working days. Furthermore, Morrison's Home Supplies, Inc., has estimated that the stockout cost is $50 per unit. The reorder point is 650 units. Although the demand each year is high, it varies considerably. The demand during the lead-time appears in the following table.
Demand ...
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