FACULTY OF ECONOMIC SCIENCES AND

ADMINISTRATIVE

PROFESSIONAL ENGINEERING PROGRAM

COMMERCIAL

BUSINESS OPTIMIZATION

STEPHANIE CYNTHIA RETAMOZO

SURCO

TOPIC: RENDER PROBLEMS

AREQUIPA -2021
 QUESTIONS FOR ANALYSIS
6-1 Why is inventory an important consideration for managers?
Inventory is an important consideration for managers because it shows a
a big investment and doesn’t want to have money without utility, nor does he want it to be lacking.
Inventory, good inventory control reduces costs that will be important.
6-2 What is the purpose of inventory control?
It has an important function as it adds flexibility to the operation of companies.
Having inventory control reduces costs for your available inventory, the customers
they can be left unsatisfied when they run out of stock.
Under what circumstances can an inventory be used as protection against the
inflation?
It is used when there is a necessary product or when the reserved products are not available.
purchased by the weather may have more demand.
6-4 Why would a company not always store large quantities of inventory?
to avoid shortages?
Sometimes the exceeded quantities would not be stored due to space or for some reason.
maintenance that these products require
6-5 What are some assumptions made when using the CLE model?
The necessary quantities required, whether they are constant or not, create order.
to avoid unnecessary expenses for an inventory.
Analyze the main inventory costs used to determine the COGS?
The quantities or orders required, the larger the quantity the greater the discount, but this
It depends on the order I have and the space required.
What is the PRO? How is it determined?
It is determined according to the order that was obtained, it is the rearrangement. The demand per day, by the
delivery time for an order in days.
6-8 What is the objective of sensitivity analysis?
The objective is that all input values are fixed and known with certainty.
However, since these values are often estimated or may change with the
time, it is important to understand the change that the quantity to be ordered can undergo, if it
they use other input values. The determination of the effects of these changes is called
sensitivity analysis.
What assumptions are made in the production run model?
When a company receives its inventory during a certain period, a new one is needed.
model that does not assume the instantaneous reception of inventory, which works
when the inventory flows continuously or accumulates over a period afterwards
to place an order

EXERCISES
6-18. Lila Batle determined that the annual demand for number 6 screws is
100,000 screws. Lila, who works at her brother's hardware store, is in charge of the
purchases and it costs $10 every time an order is placed. This cost includes
his salary, the cost of the methods used to place the order, etc. Furthermore,
estimate that the cost of keeping a screw in inventory for a year is: half
of one cent. Assume that the demand is constant throughout the year.

a)How many number 6 screws should Lila order at the same time if she wants to
minimize the total inventory cost?

b)How many orders per year should I place? What will be the annual cost of ordering?

c) What would the average inventory be?

D: 100,000

CP screws:

$10 pesos

$0.005 cents

a) Q*: √2(100,000)(10) 20,000 screws of the

number 6 0.005
Quantity of screws to order to minimize the total inventory cost:
20,000

b) N: 100,000 N: 5 orders
annual 20,000

$10 each time an order is placed X 5 orders annually: $50

Orders per year: 5 annual orders

Annual ordering cost: $50

c) Average inventory: 20,000 = 10,000 units x $0.005 cents = $50

2
Average inventory: 10,000
 annual cost per unit

$50

It takes about 8 working days for an order of number 6 screws to arrive.

once it is placed. (See problem 6-18.) The demand for such screws is
quite consistent and, on average, Lila has observed that her brother's hardware store
sells 500 of these screws a day. Since the demand is quite constant, Lila thinks
which can completely avoid shortages, if only you organize the screws of number 6
at the right moment. What is the reorder point?

Delivery time for order

8 days Daily demand
The reorder point 500
(PRO) is given by:
=
PRO= 500x8
=4000

Therefore, the reorder point is 4000 units per year. The reorder point is 4000.
screws per year.

Lila's brother thinks that she places too many orders per year for the
screws. Think that an order should be placed only twice a year. If Lila continues
his brother's policy, how much more would his ordering policy cost each year?
Developed in problem 6-18? If only two orders are placed each year, what
What effect will it have on the PRO?

= ∗ + 2∗ ℎ With Lila's policy, it is certain that

=100,000 20,000∗ 10 + 20,000
2∗ 0.01 divided by 2

CT= 100 With Lila's brother's policy you have to: #ó =

100,000

=2→ = 50, 000

Therefore, the total costs are: Invalid input format∗ 10 + 50,000

2∗ 0.01/2
CT= 145 ∆ = 145 - 100 ∆ = 45
 As the reorder point is defined by the lead time and daily demand, the
Changing the number of orders per year does not affect the reorder point. The total cost
the additional cost incurred would be $45 and there is no effect on the reorder point.

Bárbara Bright is a purchasing agent at West Valve, a company that sells valves.
industrial and fluid control devices. One of the most popular valves is the
Western has an annual demand of 4,000 units. The cost of each valve is
$90 and the storage cost is estimated at 10% of the cost of each valve. Barbara
conducted a study on the costs involved in placing an order for anyone
of the valves stored by West Valve; it concluded that the average cost per order is
from $25 per order. Even more, it takes about two weeks for the supplier
place an order and, during this time, the weekly demand for the valves
West is approximately 80. a) What is the CLE?

D=4.000
Ch= 10% (90)=9
Co= 25
L=2 weeks
d=80 2

= 149.07

b) The reorder point (ROP) is given by: = The PRO = 2x80 = 160

What is the average inventory?

average=

The average annual inventory = The = 2

The annual storage cost = 149.07 2

74.54∗ ℎ 149.07 2∗ 9
670.82

How many orders per year should I place? What is the annual cost of ordering?

The #ó =

4000

The # orders per year = 149.07 = 26.833

The = ∗∗ 4,000
The annual ordering cost = 149.07∗ The cost of the economic lot is
149.07 units, an order should be placed when the inventory reaches 160 valves.
have an average inventory of 74.54 units with a storage cost of $670.82
per year, issuing 26.83 orders per year at a cost of $670.82 annually.

Ken Ramsing has been in the lumber business for almost his entire life.
Ken's biggest competitor is Pacific Woods. Due to many years of experience,
Ken knows that the cost of placing a counter-order is $25 and that the
the cost to store is 25% of the unit cost. Both Ken and Pacific Woods
They receive the plywood in loads that cost $100 each. Moreover, Ken and Pacific
Woods deals with the same supplier and Ken was able to find out that Pacific Woods orders
quantities of 4,000 loads at once. Ken also knows that 4,000 loads is the CLE for
Pacific Wood. What is the annual demand for plywood loads for Pacific?
Woods?

4,000 = (2 (25) / 25) ^ 0.5

8,000,000

ANSWER: 8,000,000 million

6-23. Shoe Shine is a shop located on the north side of Centerville. The demand
The annual sale for popular sandals is 500 pairs and John Dirk, the owner of Shoe
Shine, you have the habit of ordering 100 pairs at a time. John estimates that the cost per order
It is $10 per order. The cost of the sandal is $5 per pair. In order for the policy to
Ordering from John should be the correct one, what would the cost be for storing as
percentage of the unit cost? If the storage cost is 10% of the cost, what is it?
What would be the optimal quantity to order?
D = 500 pairs
Sort 100 pairs at a time
Co = 10
Cost of Sandal = 5 x pair

Ch = 5*0.10
= 0.5

CLE = (2*(500) * (10) / 0.5) ^ 1/2 = 141.42

In problem 6-18 we helped Lila Batle determine the optimal amount to

Order for number 6 screws. She estimated that the cost for ordering was $10.
In order. At this moment, however, she believes that this estimate was too much.
low. Although he doesn't know the exact cost of ordering, he believes it could be both
how $40 per order. What would be the change in the optimal quantity to order, if the cost
for orders over $20, $30, and $40?
 D: 100,000

CP screws:

$20 pesos

$0.005 cents

a) Q*: √2(100,000)(20) Q*: 28, 284 screws of the

number 6 0.005

D: 100,000 screws
$30 pesos

$0.005 cents

Q*:√2(100,000)(30) 34,641 screws of number 6

0.005

D: 100,000

CP screws:

$40 pesos

$0.005 cents

Q*:√2(100,000)(40) 40,000 screws of number 6

0.005

ANSWER:

CP $20 PESOS: 28, 284 screws of number 6

CP $30 PESOS: 34,641 screws of number 6

$40 PESOS: 40,000 screws of number 6

6-25. The machining workshop of Ross White uses 2,500 supports over the course of a year, and
this usage is relatively constant in that period. The supports are purchased from a
supplier that is 100 miles away at $15 each, and the delivery time is
for 2 days. The annual cost for storing per item is $1.50 (or 10% of the unit cost)
and the cost per order is $18.75 per order. There are 250 working days per year.
What is the CLE?

CLE = Q*: √2 (2,500) (18.75) 1.5

250 supports

b) Given the CLE, what is the average inventory? What is the annual cost for
store the inventory? Average inventory: Q/2: 250/2 = 125 supports Cost
annual for storing inventory: Q*Ch/2= 125 * 1.5 = $187.5

c) By minimizing the cost, how many orders would be placed each year? What will be the cost?
annual per order? D/Q = 2,500/250 = 10, so 10 orders must be made
each year Co * D/Q = 18.75 * 10 = $187.5, so $187.5 is the annual cost for
to order

d) Given the CLE, what is the total annual cost of inventory (including the cost of
purchase)? 187.5+187.5+2500*15= $37,875

e) What is the time between orders? Since 10 orders would be placed each year and
The delivery time is 2 days, the time between orders is: 365/10–2 = 34.5
(days)

f) What is the reorder point? Reorder point: (2/365) * 2,500 = 13.6986 =

14
6-26. Ross White (see problem 6-25) wants to reconsider his decision to buy the
supports and believes he can manufacture them in his workshop. He has determined that the cost per
preparation would be $25 for the worker's time and lost production time, and that
50 supports could be manufactured in one day, once the machine is prepared. Ross
estimate that the cost (which includes labor time and materials) of manufacturing a
Support would be $14.80. The cost to store it would be 10% of this cost.

a) ¿Cuál es la tasa de demanda diaria? Demanda Anual = 2500 Días laborables = 250 2500
/ 250 = 10

b) ¿Cuál es la cantdad óptma de producción? D: 2,500 soportes CP: $25 CMI: 1.5 CLE =
Q*: √2 (2,500) (25) 1.5

289 supports

c) How long will it take to produce the optimal quantity? How much inventory is sold?
during this time? Q = 289 Daily quantity = 50

289 / 50 = 5.78 = 6 days

d) If Ross uses the optimal level of production, what would the inventory level be?
maximum? What would be the average inventory level? What is the annual cost for
store? D/Q = 2,500/289 = 8.6 then 9 orders must be placed each year Co * D/Q
= 25 * 8.6 = $187.5, so $215 is the annual cost for ordering

e) How many production runs would there be each year? What would be the annual cost for
preparation? 215 + 215 + 2500 * 15 = $37930

6-27 When the support provider heard that Ross (see problems 6-25 and 6-
26) I was considering producing them in his workshop, I notified Ross that I would lower the price.
from $15 to $14.50 per support, if Ross bought them in batches of 1,000. Without
Due to the embargo, delivery times would increase to 3 days for this large quantity. a)
What is the total annual cost of the inventory plus the purchase cost, if Ross buys
the supports in batches of 1,000 at $14.50 each? b) If Ross decides to buy in batches
Of 1,000 supports, what is the new PRO? c) Given the purchase options of
supports at $15 each, produce them in the workshop for $14.80 and take advantage of the discount,
What is your recommendation for Ross?

(2500/1000) + 18.75 + (1000/2) + (14.5*0.1) + (2500*14.5)

37021.88

b)PRO=10*3=30

c) 37021.88, request 1000 units.

After analyzing the costs of the different options to obtain the

supports, Ross White (see problems 6-25, 6-26 and 6-27) acknowledges that although
You know that the delivery time is 2 days and the daily demand has an average of
10 units, the demand during the delivery time often varies. Ross has
kept careful records and has determined that the demand during the time
of giving you a normal distribution with a standard deviation of 1.5 units.

a) What value of Z will be suitable for a service level of 98%? Z = 2.05

What safety stock should Ross maintain if he wants a 98% service level?
service? IS= zσ = 2.05 (1.5) =3.075 units

c)What is the adjusted PRO for the supports? PRO = 20 + 3.075 = 23.075

d)What is the annual cost for storing the safety inventory, if the cost
The annual storage cost per unit is $1.50? 3.075 (1.5) = 4.61
Douglas Boats is a supplier of yacht equipment in the state of Oregon and
Washington. Sells 5,000 White Marine WM-4 diesel engines each year. These engines
they are sent to Douglas in 100 cubic foot containers and Douglas Boats maintains
he filled his warehouse with these WM-4 motors. The warehouse can hold 5,000 feet.
cubic supplies for yachts. Douglas estimates that the ordering cost is $10
by order and the cost for storage is $10 per engine per year. Douglas Boats
Consider the possibility of expanding the warehouse for WM-4 engines. How much will it
Should Douglas Boats expand and what would be the value of the expansion for the
Company? Suppose that demand is constant throughout the year.
D = 5000 Warehouse can hold 5000 feet
Co = 10 Ch = 10
How much should it expand? Value of the expansion?

CLE = ROOT (2*5000*10/10) = 100 = 10000 feet

CT = 5000 / 100*10 + 100/2*10 = 1000

How many engines fit in 50 warehouses? 250

Northern Distributors is a wholesale organization that supplies

products for lawn and home care to retail stores. A
The building is used to store Neverfail lawn mowers. The building has 25
front feet by 40 feet deep and 8 feet high. Anna Odlham, manager of the
warehouse, it is estimated that approximately 60% of the warehouse is used to store the
Neverfail mowers. The remaining 40% is used for runners and a small office.
Each Neverfail lawn mower comes in a box that is 5 feet by 4 feet by 2 feet high.
annual demand for these mowers is 12,000 and the cost per order for
Northern Distributors is $30 per order. It is estimated that storing costs Northern
$2 per mower annually. Northern is considering increasing the size of the warehouse.
the company can only expand it by extending the background. For now, it stores 40
background feet. How many background feet should be added to the warehouse to minimize the
Annual inventory cost? How much should the company be willing to pay for it?
expansion? Remember that only 60% of the total area can be used for
store Neverfail mowers. Assume that all assumptions are met.
CLE.

60%(25 feet * 40 feet * 8 feet) = 4,800 cubic feet

5 feet * 4 feet * 2 feet = 40 cubic feet

4,800 cubic feet / 40 cubic feet = 120 units

12,000
 Q*:√2(12,000)(30) 600
units 2

600 * 40 cubic feet = 24,000 cubic feet

24,000 cubic feet / 25 feet x 8 feet = 120 feet

120 feet + 40 feet = 160 feet