A sporting goods company has a distribution center that maintains inventory of fishing rods. The fishing rods have the following demand, lead time, and cost characteristics: Average demand = 100 units per day, with a standard deviation of 12 units Average lead time = 12 days with a standard deviation of 2 days 250 days per year Unit cost = $25 Desired service level = 95% Ordering cost = $50 Inventory carrying cost = 20% The basic question: How many fishing rods should the distribution center carry to provide the desired service level? There are, of course, many other specific questions, such as EOQ? Average cycle stock?

Solution:

Average demand = 100 units per day, with a standard deviation of 12 units

Average lead time = 12 days with a standard deviation of 2 days

250 days per year

unit cost = $25 , desired service level = 95% , Ordering cost = $50 , Inventory carrying cost = 20%

Lets say

Average demand = Ad

Average lead time = At

Unit cost = U

Desired service level = Dl

Ordering cost = O

Inventory carrying cost = Icc

Standard deviation =S

Thus,

S of demand at Dl = = 205 units

SS = 1.65 multiply with 205 = 339 units

Total units in a day = 250 multiply with 100 = 25000

EOQ = = 708 units

here 25 and 0.2 is unit cost and invetory cost

TAC

annual ordering cost

O = = 1765.5

Annual inventory cost

Icc = = 1770

Annual product cost = Pc

25 multiply with 25000 = 625000

total = O +Icc+Pc

625000+1770+1765.5 = 628535.5

If the service level increases from 95% to 99%, cost will dec per unit

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.