SOLVED PROBLEMS MODEL OF

INVENTORIES

Problem #1)Sharp Inc. is a company that sells needles.

painless hypodermics in hospitals, wishes to reduce their inventory costs
by determining the number of needles that must be obtained in each order.
The annual demand is 1000 units; the handling cost per unit per year is
of 0.50 dollars. Calculate the optimal number of units per order.
Data:
annual demand = 1000
A = $10.00 (cost per order processing)
H = $0.50/unit-year (cost to maintain one unit in inventory per year)

a) Optimal number of units per order

1/2
Q* = 2AD/H= [((2 x 10) x 1000) / 0.50]

Q* = 200 needles/order

b) Number of orders in the year (N)

N = D/Q = (1000 units/order) / (200 units/order)
N = 5 orders

c) Cycle time, expected time between orders (T)

T = Q/D = (200 units/order) / (1000 units/year)
T = 0.2 years/order = 50 days/order

The year is considered to be = 250 working days.

D 1000 units/year
250 days
1 day = ?
SOLUTION:
1000 X 1 ÷ 250 = 4 units/day

Q* = 200

Point Cycle
of order

$100.00

How much to buy? Q*

When to buy? Reorder Point (ROP)

How much does the inventory system cost per year?

d) Reorder point based on inventory.

ROP = Demand during delivery time = D(TE)

If the delivery time for this problem is 10 days:

ROP = 4 units/day
10 days = 40 units

When there are 40 units in inventory, the following needs to be done

order.

e) Annual variable costs of the inventory system (VC)

VC = ordering cost + inventory holding costs

 VC = 10 (1000/200) + 0.50 (200/2) = 100

Problem #2) A company sells household items, with a demand

annual of 1,000 units, if the cost to place an order is 10 dollars, the
the annual unit storage cost of each item is 2.50 dollars,
the company operates 365 days a year, seven days a week, with a sales cost of
15 dollar item, determine the optimal inventory policy of the Company.
SOLUTION:

Q = 2DS 2(1,000 )(10)

OPT
H = 2.50 89.443 units or 90 units

d=
1,000 units/year= 2.74
units/day 365 days/year
_
Reorder point, R = d L = 2.74 units/day (7 days) = 19.18 or 20 units

Problem #3A taxi company consumes gasoline at a rate of 8500.M

gallons/month. Gasoline costs $1.05/gallon and has an emission cost of
Order of $1000/order. The cost of holding inventory is 1.
cent/gal/mon.

a) Determine when and how much to order if you wish to minimize costs.
b) total.
c) Suppose that stockouts are allowed, and that it amounts to 50
cents/gallon/month.
d) Suppose that the cost of gasoline drops to $1/gallon if they buy, at the
less than 50,000 gallons.
e) Suppose that the cost of gasoline is $1.20/gallon if the size of the
order is less than 20000 gallons, $1.10/gallon if a2=40000 gallons, and
$1.00/gallon if Q is at least 40,000 gallons.
f) Is the data of θ necessary to solve this problem?
SOLUTION:
Section a:
Q*= 41231 gallons.
Frecuencia (nº de pedidos al mes): 0,21 ; Frecuencia (nº de pedidos al año): 2,47
T* (meses)= 4,85 ; T* (días) = 146

Section b:
Q* = 41641 gallons
Frecuencia (nº de pedidos al mes): 0,20 ; Frecuencia (nº de pedidos al año) = 2,45

T* (meses)= 4,90 ; T* (días) = 147

Section c:
 41231 gallons
Q2* = 42249 gallons
9337 $
CT(a) = 8908 $
Q* = a = 50000 gallons
Frecuencia (nº de pedidos al mes): 0,17 ; Frecuencia (nº de pedidos al año) = 2,04

T* (meses): 5,88 ; T* (días): 176

Section d:
Q1* = 38568 gallons
Q2* = 40283 gallons
42249 gallons
SITUATION: a1<Q1*<a2<Q2*<Q3*⇒Q*=Q3*=42249 gallons
Frecuencia (nº de pedidos al mes): 0,20 ; Frecuencia (nº de pedidos al año) = 2,41

T* (meses)= 4,97 ; T* (días) = 149

Problem 4

Example
A printer who is currently making a monthly purchase, studied the
behavior of the 70 gr. book paper in the last twelve months found that its
demand was: 10, 11, 10, 9, 10, 11, 9, 10.5, 10, 9, 9 and 11.5 tons per month,
the purchase price is expected to remain at $2,300,000 per ton, its cost of
Order at $500,000 and due to policy, it adds 15% of the unit cost for handling.
inventories plus $55,000 for warehousing costs, calculate:
The model to be managed under these conditions.
If the supplier offers us a 10% discount on purchases over 30
tons and one of 11% for purchases of 60 tons, how would my policy change.
3. If in addition to the discount we manage to obtain a term that makes our cost
if conservation is reduced solely to storage, how would my policy change?

The first thing we must observe is the behavior of the demand which we see.
which is relatively constant, so we can assume that our model is
behaves according to the parameters of an economic order quantity model
with the following input data:
D = 120 tons per year
$500,000
C = $2,300,000 per ton
Cc = $400,000 ton/year
Therefore
As we can see in this inventory purchase policy, the company saves
more than 20% in the cost associated with the inventories that I would have if I made a
monthly purchase ( CA = 12*500,000 + [12/2]*400,000 = $8,500,000), which added to the

savings that would be achieved with the different products managed by the company will allow
important improvements in profitability at the end of the fiscal year.

Regarding question 2:

Alternative 1:

Alternative 2:

Therefore, the 10% discount must be accepted, since in the event of selecting the
scale that provides an 11% discount, the extra costs for inventory handling are
higher than the benefits that would be obtained with a lower purchase value.

Question 3 showcases an aphorism that is sometimes valid: "it doesn't matter the
price if not the term; for our case when radically changing the cost of
conservation must recalculate the entire model with a conservation cost of
$55,000, which will give us the following results:
In this phase of this particular problem, we see how with a cost reduction of
order, automatically, we can order with a 10% discount given the
negotiation conditions proposed, which would result in savings for a
amount exceeding thirty million pesos regarding the results
obtained in the classic model, if we look at the second discount scale we obtain:

In this case, the second tier of discounts must be accepted.

Problem 5

The demand for an item from a certain company is 18,000 units per
year and the company can produce that item at a rate of 3,000 units per month, The
the cost of organizing a production round is $500.00 and the storage cost of
one unit is $0.15 per month. Determine the optimal quantity that should be
manufactured and the total cost per year assuming that the cost of one unit is $
2.00

= 4,470 Units

The total annual cost is

$40,026

The maximum inventory would be determined by:

 =2 235 Units

Problem 6

The demand for a particular item is 18,000 units/year. The cost

the storage cost per unit is $1.20 per year and the ordering cost
a purchase is $400, the lead time (L) is 20 days, the
The cost of one unit is $1. (Assuming 1 year = 250 days):

To determine the quantity to order, the following is done:

The interval between orders is:

The daily demand is calculated as follows. Since the demand is from

18,000 units per year and 1 year = 250 days, then:
Problem 7

Example 7:
The annual demand is D = 1000 units, the economic order quantity is Q = 200 units, the
the desired probability of not experiencing a shortage is P = 0.95, the standard deviation of demand during the
delivery time is = 25 units and the delivery time is L = 15 days. Determine the reorder point,
assume that the year has 250 working days.

̅ = 1000 / 250 = 4 units / day

= ̅ + ( 415
equals ) + (Z 25
)
60 + 1.64 * 25 = 64 + 41
= 101 units

The inventory policy states that when items drop to 101 units, 200 should be ordered.

Problem 8

The daily demand for a certain product is normally distributed with a mean of 60 and a
deviation of 7 units. The supply source is reliable and maintains a constant lead time of 6 days.
the order placement cost is US $10 and the annual maintenance costs are US $0.50 per
unit. There are no depletion costs of the inventory and unsatisfied orders are fulfilled as soon as
The order arrives. Assume that there are sales throughout the year. Find the order quantity and the point of
new order to satisfy 95% of customers based on available stock.

Data:
d=60
d=7
D=60*365
Cb$10
$10
H=0.50
L=6

We calculate Q

2DCe 2*60*365*10
Q* 936 units
Ca 0.50
For the reorder point, we must calculate the amount of products used and add it to the reserve.
security.

L= 6*(7^2) =17.2
Then we need to see how many standard deviations are needed for a specific service level.
 E(z) = (1-p)*Q/σL=(1-0.95)*936/17.2 = 2.721

Interpolating we obtain from table E(z)=2.721, z = -2.72; therefore the new reorder point is:

R = d*L + z* L=60*6+(-2.72)*(17.2)=313.2 units.

Note that 'z*' LIt is negative, this means that if the order quantity Q has been placed, when the position of
inventory has fallen to the expected demand during the period (dL=369), it would have a higher service level than the
Expected. To reduce the service level to 95%, it is necessary to create more shortage by placing an order.
slightly lower (313).1

Problem 9

A supermarket wants to develop a purchasing policy for its inventory that represents a
95% probability of not experiencing shortages. In the case of sheets, the demand is 5,000 per year.
store opens 365 days a year and takes inventory every 14 days and places new orders. The delivery
the sheets take 10 days. The standard deviation of the demand for sheets is 5 per day and
Currently, there are 150 sheets in stock.

DATA:
D: 5000 sheets per year
365 days a year
ƌ: 14 sheets per day
14 days between reviews
L: 10 days delivery

I: 150 sheets (current inventory)

95% probability of not experiencing shortages

1.-

5√ 14+ 10
= 5√ 24
= 5( 5)
= 24

95 15=
1.64 x 24 = 40

2.
Average demand throughout the vulnerable period

= 14 14 + 10
= 14 24)

1See Chase Aquilano p. 597.

 = 329

3.
Quantity to request
q= + - I
q= 40 + 329 - 150
q= 219 units (sheets)
As an inventory policy to ensure a 95% probability of not experiencing stockouts, orders will be placed for
219 units (sheets) for this period between revisions.

Problem 10

A company sends its truck every 30 days to pick up Chips from its supplier. The truck takes 2 days to
make the trip and before leaving obtain the order. The chips are consumed at an average rate of 5 per day
(with a standard deviation of 1 per day) the 7 days of the week, if currently there are 35 chips in
existence and a service level of 98% is desired, how many chips should be ordered?

= ̅( + )+ + ( + 2 + 2.15
= 530 ) 1 square( root
) of 30 + 2 = 172.16 ≈ 173 units

Cant. a pedidir = 173 - 35 = 138 units

Problem 11

DATA
days 50 5,250
d = average daily demand 5000 year 20 daily
L = delivery time in days 3 weeks 15 days
Z = numbers of standard deviations for 30 boxes
oL = standard deviation of usage during the 95%
S= 10
i= 20%
c= 3

2 10 250 20 = 408 boxes

3 20%

m= L d
m = Ld 3:00 PM 20.00 300
(√L) (Z)
oL = (√L)(Z) 3.87 30.00 116.19
R= m Z oL
R = m + ZoL 300 1.64 116.1895 = 491
 The inventory decision policy of the Q system consists of placing a
order of 408 bottles of wine whenever the stock position falls
On average, 50 orders will be placed per year and there will be an average of
five days

Problem 12
The daily demand for a product is 60 units with a standard deviation of 10 units. The review period is 10 days.
with a delivery time of 2 days. At the time of the review, there are 100 units in stock. If a service probability of
90%, how many units should be ordered?

Problem 13
At Charlie's Pizza, they supply pepperoni from Italy; after placing the order, it takes 3 weeks to arrive.
to arrive, the supplier takes orders every 4 weeks. An average of

150 kg of pepperoni per week with a standard deviation of 30 kg. Given your service of
First, they want to guarantee a 98% probability of not experiencing a shortage of pepperoni.
Assume that the supplier's representative has just arrived and there are 500 kg of pepperoni.
the refrigerator, how many kilos would be requested?

Problem 14