Post Graduate Diploma in

Supply Chain Management (SCM)

Course Name: Supply
Chain Analytics (SCA)
 MODULE – 5
INVENTORY MANAGEMENT- II

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 LEARNING OBJECTIVES
➢ Understand the concept of inventory replenishment policies and their role in managing stock levels.
➢ Grasp the fundamentals of the Newsvendor Model and its application in inventory decision-making
under uncertainty.
➢ Apply the continuous review policy (s, Q) to real-world scenarios.
➢ Apply the periodic review policy (R, S) to real-world scenarios.
➢ Understand and calculate the Customer Service Level (CSL).
➢ Understand and calculate the Inventory Fill Rate (IFR).
➢ Understand and calculate the Customer Service Objective Error (CSOE).
➢ Understand and calculate the Cycle Service Level (CSL).
➢ Integrate different replenishment policies and LOS metrics into effective inventory management
strategies.
➢ Develop critical thinking skills in addressing uncertainties and variability in inventory management.

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Module 5 Task
Wooden Stuff is a furniture retailer operating in Nilkhet, Dhaka. It mainly commercializes wooden
desks in various sizes and shapes, and they have become very popular among DU and BUET
students that need to furnish their hall rooms. To date, they have been managing their inventory
with a simple Base Stock Policy: one item sold, one item ordered. This has worked well for a few
years, but now they would like to switch to a more sophisticated policy.
Their flagship product is SKU 5496RL, the Lifting Table, a table that can be adjusted to different
heights to allow working in seated or standing position. This product accounts for one third of their
sales and they would like to ensure a Cycle Service Level of 95% for this item.
You have been asked to analyze this item and propose an inventory management policy that fits
the company’s needs. After doing a little bit of research, you have estimated that the annual
holding charge for the Lifting Table is 25%. The demand planner has given you some interesting
data: the demand for the Lifting Table follows a normal distribution with a mean of 1876 units per
year and a standard deviation of 228 units.
The purchasing department informs you that the cost of each desk is $120 and the estimated
ordering costs are $100 per order. It usually takes 10 days for the ordered items to arrive to the
Wooden Stuff facilities. Every Lifting Table is sold at a price of $300. (Assume that there are 365
days in one year, and 30 days in a month.)
After analyzing all the available information and interviewing some key stakeholders in the
company, you have decided to explore a Continuous Review Policy (s, Q).
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Module 5 Task
1) What would be the replenishment order quantity Q? (Round to the nearest integer.)
2) What would be the reorder point s? (Round to the nearest integer.)
3) If this policy was to be implemented, what would be the Item Fill Rate? (Round your answer to
four decimal figures) (ex.: 0.8735)

Based on market research and historical data, the Wooden Stuff financial manager has estimated
that the cost per stockout event is $313. He thinks the policies you proposed might be allowing too
many stockout events to happen.
4) By focusing on this metric, what would be the new value of the safety factor k? (Round your
answer to two decimal figures) (ex.: 1.87)

The operations manager would like to use the solution proposed in Part 1, but it would be more
convenient for his team to review the inventory level only twice a month (every 15 days).
Considering his feedback, you decide to transform the Continuous Review Policy in Part 1 into a
Periodic Review Policy (R, S)
5) What would the average replenishment order quantity be in this case? (Round to the nearest
integer.)
6) What would the Order Up to Point quantity S be in this case? (Round to the nearest integer.)

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 LEARNING OUTCOMES
➢ Differentiate between various replenishment strategies and recognize their implications on
inventory costs and service levels.
➢ Apply the Newsvendor Model to find optimal order quantities that balance the costs of
overstock and stockouts.
➢ Implement and analyze a continuous review policy, considering order-up-to-levels and reorder
points in practical inventory management situations.
➢ Implement and analyze a periodic review policy, considering review intervals and order
quantities, and understanding its implications on inventory levels.
➢ Calculate CSL, which represents the probability of not having stockouts during a replenishment
cycle.
➢ Calculate IFR, which measures the percentage of demand that is met directly from inventory.
➢ Calculate CSOE, providing insights into the discrepancy between desired and achieved customer
service levels.
➢ Calculate CIS, which measures the probability of having sufficient stock at any random point in
time.
➢ Students will be able to select and implement appropriate replenishment policies based on
business requirements, considering the trade-offs between costs and service levels.

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 Any

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 Thank You

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