1 PROBLEMS

A certain number of the following problems and case studies in this chapter can
resolved totally or partially with the help of computer software. The packages of
The most important software in LOGWARE for this chapter are INPOL (I) and MULREG (MR).
The CD icon will appear with the software package design where analysis is assisted.
of the problem through one of these software programs. A can be prepared
database for the problem, if extensive data entry is required. When the
the problem can be solved without the help of the computer (by hand), the icon of the
hand. If no icon appears, manual calculation is assumed.
1. A buyer goes to a pharmacy in search of six items. The store stocks these items.
with the following probabilities of having them in stock:

Assuming I buy only one item of each of these products, what is the probability
that the buyer completes their order?

The probability of finding all items in stock is the product of the probabilities
individuals. That is to say,

(0,95)× (0,93) × (0,87) × (0,85) × (0,94) × (0,90) = 0,55

2. Central Hospital Supply has the policy that a hospital can wait for the supplies to be replenished.
your orders directly from the stock 92% of the time. If any item from
an order is out of stock, the entire order remains as pending order, to avoid
the additional shipping costs. Orders typically include up to ten items.
A sample of the orders from the last year shows that six combinations often appear.
of products in the orders, as follows:

The inventory levels have been set in such a way that products A, B, C, D, E, and F have
a common service level of 0.95 each. For the rest of the products, it was set
at 0.90 each.

Is the company meeting its inventory service objective?

The order fulfillment rate is the weighted average of completing the combination of items in an order. We can
configure the following table.

( (2) (3) = (1) ×

1 Frequency (2)
) cia Marginal
Baby Mixing probabilities of items of order probability
do ad
1 . 95×.95×.95×.90×.90 = .69 0.20 0.139
2 . 95×.95×.95 = .86 0.15 0.129
3 . 95×.95×.90×.90 = .73 0.05 0.037
4 . 95×.95×.95×.95×.95×.90×.90 = . 0.15 0,094
62
5 . 95×.95×.90×.90×.90×.90 = .59 0.30 0.178
6 0.95 × 0.95 × 0.95 × 0.95 × 0.95 = 0.77 0.15 0.116
Compliance rate of 0.693
orders

Since 69.3 percent is less than 92 percent, the target order fulfillment rate is not met.
b. In the negative case, what levels of service for items would these two have to set?
product groups to meet the order availability rate of 92%?

(b)The service levels of the item that will achieve a 92 percent order fulfillment rate must
to be determined by trial and error. Although there are many combinations of service level options
articles that can achieve the desired service level, a service level of 99 percent for the
articles A B C D E
y Fand from 97 to 98 percent for the remaining elements would be fine.
Order fulfillment rates can be found as follows.

(1) (2) (3) = (1) × (2)

Frequency Marginal
cia
I asked Mixing probabilities of items de orden probability
do
1 (.99)3× (.975)2= .922 0.20 0.184
2 (.99)3 = .970 0.15 0.146
3 (.99)2× (.975)2= .932 0.05 0.047
4 (.99)5× (.975)2= .904 0.15 0.136
5 (.99)2× (.975)4= .886 0.30 0.266
6 (.99)5= .951 0.15 0.143
Compliance rate of 0.922
orders
An importer distributes television sets from the Far East throughout the European Union.
from four warehouses. The shipments are received monthly, and this one
is of 120,000 devices. Due to the long delivery time, it is difficult for demand to
the offers of the devices match. Therefore, the assignment to the warehouses is based on a
monthly demand forecast and service level for each warehouse. The records
And inventory forecasts for next month show the following situation:

a-. Projected at the time of a stock replenishment based on the current rate of
sales.
b-. One standard deviation. Forecast errors are normally distributed.
c-. Probability of having stock during the month.
If the transportation to the warehouses takes a week and the handling of the import requires
One week after the shipment arrives, how should the allocation be done?
of the devices in the warehouses?

This is a push inventory control problem. The question is to find out how many of
120,000 sets to allocate to each warehouse. We began estimating the total
requirements for each warehouse. That is,

Total requirements = Forecast + z × Forecast error

From Appendix A, we can find the values corresponding to the service level in each.
deposit. Therefore, we have:

(1) (2) (3) (4) = (1) + (2)× (3)

Mercandise- Demand Forecast Value Total requirement
house ["forecast","sets"] error, sets
s less, sets

1 10,000 1.000 for z

11,280
2 15.000 1200 1.28 16,248
3 35,000 2,000 1.04 37,360
4 25,000 3000 1.18 29,230
Total 85,000 1.41 94,118
 We can find the net requirements for each warehouse as the difference between the
total requirements and the available quantity. The following table can be constructed:

(1)
Total
(2) (3) = (1) - (2) (4) (5) = (3) + (4)
Goods to demand
In hand Net requirement Proration of
house mentos amount mentos excess Assignment
1 11,280 700 10,580 3.633 14,213
2 16,248 0 16.2 5.450 21,698
48
3 37,360 2500 34,8 12,716 47.576
60
4 29,230 1.800 27.4 9.083 36,513

There are 120,000 - 89,118 = 30,882 sets to apportion. This is done assuming that the rate of
demand is better expressed through forecasting and proportionally the excess in relation to
the forecast of each warehouse to the total expected amount. In other words, for warehouse 1, the allocation
(10,000 / 85,000) ×30,882 = 3,633 sets. The allocations to the other warehouses are
They are carried out in a similar manner. The allocation to each warehouse is the sum of its net needs.
plus a prorating of the excess, as shown in the previous table.
A mail-order computer supply house has a memory chip.
in inventory that sells to customers nationwide. A Japanese manufacturer supplies the
Article using air cargo. It has the following characteristics:

a. Design a reorder point control method for this item.

b. If you use your design, what are the annual ordering and handling costs?
c. Suppose the delivery time extends to three weeks, so PRO>Q*.
What adjustments would you suggest making to the control policy?

The reorder point system is defined by the order quantity and the reorder point quantity.
Since the demand is known with certainty, the optimal order quantity is:

Q *= 2DS/ IC= 2 (3200) (35) / (0.15) (55) = 164.78, or 165 cases

The reorder point quantity is:

ROP= D× LT=(3.200 / 52) × 1.5 = 92 units

(b) The total relevant annual cost of this design is:

TC= D× S / Q+ I×C×Q* /2
= (3.200) (35) / 164,78 + (0,15) (55) (164,78) / 2
=679,69 + 679,97
$1,359.66

The revised amount of reorder points would be:

ROP = (3.200 / 52) × 3 = 185 units.

theROPis greater than Q*In these circumstances, it is possible that the order quantity
raise the stock level above theROPamount. When deciding whether theROPit has been achieved,
we add any amount in order or in transit to the available amount as the
effective quantity in the inventory. Of course, we start with an appropriate amount
in stock that is at least equal to theROPamount.
Helen's Secretarial School trains young people in word processing and other skills.
secretarial. The course tuition fees are $8,500, but will be reduced to
10% of the annual rate until the graduate gets a job. The average demand
Annual for its graduates is 300 per year. (Note: the value of the product and the execution costs
they are the same.
a. How many potential secretaries should Helen admit per group?
b. How many times a year should the course be offered?

(a) Here the economic order quantity formula can be used. That is,

Q* = 2DS/ IC= 2 (300) (8.500) / (0.10) (8.500) = 77.5, or 78 students

The number of times the course should be offered is:

north*=D/Q300 / 77.5 = 3.9, or approximately four times a year

A retail store purchases computer software from a distributor for resale.

For an upcoming promotion, the retailer needs to determine the best order size.
for a single purchase. One of the products is a processing software program
of texts that will have a special sale price of $350. The retailer estimates the
probabilities of selling various quantities in the following way:

The program can be purchased from the distributor for $250 each, but there is a charge of
20% re-stocking fee of the purchase price if returned to the distributor any
unsold program.
What size of purchase order should the retailer commit to?
This is a single-period inventory control problem. We have:

Ingresos = $ 350 / unidad

Profit = $ 350 - $ 250 = $ 100 /
unit Loss = 0.2×250 = $ 50 /
unit

Therefore,

100
CPnorte= 0.667
100 + 50
 Developing a table of cumulative frequencies, we have:
Cumulative
Quantity Frequency frequency
50 0.10 0.10
55 0.20 0.30
60 0.20 0.50
sixty-five 0.30 0,80⇐Q*
70 0.15 0.95
75 0,05 1.00
1.00

CPnorteit is between quantities of 60 and 65. We round and select 65 as the optimal size of the
purchase order.

7. They are installing an ATM at a MetroBank branch. According to the investigations

from the bank, it is estimated that it benefits indirectly by offering this service. The
estimates that the bank will generate income at a rate of 1% on the money that passes through the
machine, in the form of new accounts for customers for service verification,
loans, savings accounts, and similar. The average withdrawal from the ATM is
$75, and the bank estimates that its cost of money is 10% per year.
Supplying the machine for the two days of the weekend is your most difficult problem.
from planning. From historical records of other ATMs, the bank estimates that
The average number of withdrawals is 120, with a standard deviation of 20 and a distribution.
normal.
How much money should the bank put in the machine for the weekend? (Tip:
Consider it a single order problem.

This question can be treated as a first-order problem. We have:

Ingresos = 1 + 0.01 = $ 1.01 / $

Cost / Loss = 0.10 (2/365) = $ 0.00055 / $ which is the interest expense for two days
Benefit = 1.01 - 1.00055 = $ 0.00945 / $

0.00945
CPnorth= 0.945
0,00945 + 0,00055

For an area under the normal curve of 0.945 (see Appendix A), z 1.60
The planned number of withdrawals is:

Q*= D+ z×σ 120

D + 1.60 (20) = 152.00

The amount of money to be stored in the ATM for two days would be:

Dinero = Q*×75 = 152.00×75 = $ 11,400

 8. Cabot Appliances, a retail chain, is trying to decide what order size
should make it your supplier of air conditioning appliances. Sales
these devices are highly seasonal, and the number of units sold depends
a lot of the summer weather patterns. Cabot makes one order a year. The reorders
There are no practices after the sales season begins to develop. Although the
The current level of sales cannot be known with certainty, Cabot analyzes past seasons.
sales, long-term weather reports, and the overall state of the economy.
Then the following probabilities of various sales levels are projected:

A unit has a delivery price in Cabot of $320 and a price for customers of
$400. Unsold items at the end of the season are marked down to $300, which means they are
remove from inventory. Purchases can only be made in increments of 250 units,
with a minimum order of 500 units.
a. Assuming that there should be no inventory left for next year, what size of
Should a unique order be placed?
Would you change the order quantity of the partes if Cabot could borrow the money?
to support an annual inventory of 20%? The surplus units can be stored
for the next sales station.
This is a single-period inventory control problem.
(a) We have:
Beneficio = 400 - 320
Loss = 320 - 300

400 - 320
CPnorte= 0.80
(400-320) + (320−300)

Now we need to find the sales that correspond to an accumulated frequency of 0.80. In the
next table:

1,000
1250 0.3 0.7
1500 0.2 0.9Q*
0.1 1.0
1.0
Q * is between 1000 and 1200 in the cumulative frequency table. We choose to surround ourselves
for Q* = 1.250 units.
Carry the excess inventory into next year,

80
CPnorte= 0.556
80 + (0,2 ×320)

where the loss is the cost of maintaining a unit until next year.* now it is located between 750 and
1,000 units. We choose 1,000 units. Keeping the excess units means a potential loss.
of 0.2×320 = $64 / unit, while the discount on excess units represents a loss of
only 320 - 300 = $ 20 / unit. Therefore, Cabot will need fewer units if they remain at the
inventory.

9. Let's suppose that a car part in a manufacturer's inventory has the following
characteristics:

a. Design a reorder point control system for this part, given the assigned.
How would you expose the inventory control policy if the PRO > Q*?
b. Design a periodic review system for this part. Now, let's suppose that the
The probability of having stock expands to the order interval plus the time of
delivery.
c. Determine and compare the relevant costs of each valuation.
What level of service (availability rate) is actually achieved with both designs?
e. Find the probability of having stock during the delivery time that optimizes the
design of a reorder point system. How does the total cost compare with that of the
the part?
The optimal order quantity is:

Q *= 2DS/ IC= 2 (1250) (52) (40) /(0.3)(56) = 556 cases

and the reorder point quantity is:

ROP = D × LT + z ×s ' D
where

s D' = s D LT = 4752.5 = 751

yzPAG= 0.80 = 0.84.

 Now,

ROP(1.250) (2.5) + (0.84) (751) = 3.756 cases

Policy: When the amount of available inventory plus any quantity on order or in transit falls
below ROP, reorder a quantity Q*.

(b) For the periodic review system, we first estimate the order review time:

T *= Q */ D = 556/1250 = 0.44 weeks

The maximum level is:

METRO * =D× (T+LT)

* +z×s' D

where s ' D now is

s D' = sDT + *LT = 4750,44+2,5 = 814 cases

That's why,

METRO=* 1250 (0.44 + 2.5) + 0.84 (814) = 4359 cases

Politics:Find the amount of stock available every 0.44 weeks and make a new
request for the amount equal to the difference between the available amount and the maximum level
METRO*of 4,359 cases.

The relevant total annual cost for these policies is:

'
TC = DS / Q + ICQ/ 2 +ICzs'
D + kDsDi(z) /Q
m

For the reorder point system:

TCQ= 1250(52) (40) / 556 + .3(56)(556) /2

+. 3 (56) (. 84) (751) + 10 (1250) (52) (751) (. 1120) / 556

= 4,676.26 + 4,670.40 + 10,598.11 + 98,332.37

= $ 118,277.14

For the periodic review system:

TCPAG
= 1250(52) (40) / 556 + .3(56)(556) /2
 +. 3 (56) (. 84) (814) + 10 (1250) (52) (814) (. 1120) / 556

= 4.676,26 + 4.670,40 + 11.487,17 + 106.581,29

= $ 127,415.12

The actual service level achieved is given by:

s ' me(
SL = 1 -
D z)

For the reorder point system:

SLQ= 1 - 751 (0.1120)

= 1 - 0.15
556

or the demand is satisfied 85 percent of the time.

For the periodic review system:

PAG 814
SL
(0,1120) = 1 - 1 - 0.16
556

the demand is satisfied 84 percent of the time.

(e) This requires an iterative approach as follows:

CalculateQequals 2DS/ IC

CalculatePAGE= 1 -QIC/ Dk, then z, then E(z)

CalculateQ = 2D(S+ Kansas' Dmi(z)) / IC

Return and stop when there are no changes in either one.

of the twoPAYQ

After the initial value of Q = 556.3, the process can be summarized in tabular form.
Step Q PAG z
1 778 0.98 2.19 0.0050
4 56
2 860. 0.97 2.06 0.0072
0 99
3 889 0.97 2.01 0.0083
9 78
 me

Now forPAG= 0.9767, z= 1.99

ROP= 1.250 (2.5) + 1.99 (751) = 4,620 cases

and the relevant total cost is:

TCQ= DS / Q + ICQ/ 2 +ICzs'

D+kDsDi(z) /Q
m'
=65.000 (4) / 902.8 + 0.3 (56) (902.8) / 2
+ 0.3 (56) (1.99) (751)
+ 10 (65.000) (751) (0.0087) / 902.8
= $40,275

This is considerably less than the $118,277.14 for the pre-adjustment PAGen 0.80.

If you solve this problem using INPOL, you will get a slightly different answer. It is
to say,Q* It is 858. This is simply because it is rounded to two significant digits instead of
the four significant digits used in the previous calculations.

[Link] question 9, but include that the delivery time is normally distributed.
with a standard deviation of 0.5 weeks.

Refer to the solution of problem 10-9 to obtain the general approach.

(a)Q*= 556.3 cases

ROP = D × LT + from LT
×s 2 D +D 2 ×s 2 LT
=1250 (2,5) + 0,84 2,5 ×4752+1,2502×0,52
=3.125 + 0,84 (977,08)
3.946 cases

(b) An approximation for T*= Q*/D, o

T*= 556/1250 = 0.44 weeks

 and approaching s ' D how

s D' = (T * + LT )s2 D + D 2 ×s2 LT

(0.44 + 2.5) (4752) + 1 2502

(0.5)2
1.027 cases

So,

Max= D(T+ *LT) + z×s' D

=1.250 (0.44 + 2.5) +0.84 (1.027)

4.537 cases

(c) According to INPOL,

TCQ= 4.686 + 4.686 + 128.195 + 13.862 = $ 151.429

TCPAG
= 4,686 + 4,686 + 134,751 + 14,571 = $ 158,694

(d) According to INPOL,

SL Q = 80.28 percent

SL PAGE
79.27 percent

(e) According to INPOL,

Q*= 930 cases,ROP5.128 cases,

TC49,532
= $ SLQ99.22 percent
Q =

T*0.76 weeksMAX6.257 cases

TC PAG = $ 52.894SLPAG = 99.18 percent

 11. A manufacturer of separate horsepower engines for use in sweepers and polishers.
industrial flooring produces its own electrical installation equipment. These
Electrical installation equipment is used in final assembly at a rate of 100 per day.
during 250 working days a year. It costs $250 to start the production of the equipment.
electrical installation. The production is at a rate of 300 per day of operation. The cost
the standard for this equipment is $75, and the company's inventory handling cost is
of 25% annually.
a. What should the running production quantity be?
b. What should be the duration of each continuous production cycle?
c. How many times a year should the part be produced?

The amount of production is:

Q* 300
p ag =
2 DS page 2 (100)
×
= =1000 units
IC × page-D
(250) (250)
300
0.25 (75) -10
(b) The production cycle is:

Q p*ag = 1000/3003.33
= days

(c)El número de corridas de producción es:

D / Q*page= 100(250) / 1000 = 25 executions per year

 A Japanese manufacturer of devices uses a valve in its final assembly operation.
refrigerators. Get the valve from a local supplier in any quantity needed
one hour after the order request. The workday is eight hours. The program
Production requests the use of this part at a constant rate of 2,000 per day, 250
Working days per year. The company pays ¥35 for this valve delivered on the assembly line.
Inventory handling costs are 30% annually. Due to agreements
contractual agreements with the supplier, the acquisition costs amount to only ¥1.00 per order
placed.
a. Design a reorder point method for inventory control for this item.
b. Suggest how a two-box system could be used as a way to carry out
this control method.

The order quantity is:

Q * = 2DS/ IC= 2 (2000) (250) (1.00) / (0.30) (35) = 309 valves

and the reorder point amount is:

ROP = D × LT + z × s D LT

but sD= 0. Therefore,

ROP= (2.000/8) (1) = 250 valves

(b) Boxes are configured that contain 309 valves, the optimal order quantity. When it arrives
an order from a supplier, 250 valves are reserved in a separate box and are treated as
backup stock. The residual valves 309 - 250 = 59 are used in the line of
production. When the 59 valves in the production line are exhausted, the backup box
which contains 250 valves is taken to the production line and the empty box is sent to the
supplier to recharge it. One hour later, when the order arrives, there will be no remaining
valves in the production line. Then, 250 valves are set aside and 59 are sent to the line
of production. The cycle is repeated below.
This approach to the problem is similar to that of the KANBAN system. Delivery times are very
short, so the delivery times are practically guaranteed. The demand is certain, as it is
set by the production schedule. Boxes or cards are used to ensure the movement of the
more economical quantity. Kanban is essentially a reorder point inventory control.
classical economics under certainty.
A large chemical company in Green River, Wyoming, extracts soda ash used in the
glass manufacturing. Commercial soda is sold to a certain number of manufacturers through
of annual contracts. Glass companies release their requirements for commercial soda
against their contracts. The mining company sees the demand in the form of quantities
from train car. A typical week shows that the demand is normally distributed
in 40 wagon loads, about 10 cars. They estimate that the standard deviation
(max cars - min cars)/6 = (50 - 30)/6 = 3.33 cars.
Commercial soda is valued at $30 per ton, and an average freight car load
The train is 90,000 pounds of product. The company's annual handling cost is 25%
per year. The execution costs in the mine are estimated at $500 per order. It takes a week.
produce the product or secure wagon loads for shipment. A probability is desired.
of 90% of stock during the delivery time.
a. The company must request cars from the railroad to supply the orders. How many cars
Should I request it at once? (Remember: A ton is equal to 2,000 pounds.)
b. For what amount of commercial soda remaining in the inventory should the requisition be made?
about cars?

(a) The economic quantity of cars that will be ordered at once is found using the quantity formula.
order economics:

Q* = 2DS/ IC= 2 (40) (52) (500) / (0.25) (90,000) (30) / 2,000 = 78.5, or 79 cars

This is the reorder point quantity:

ROP = D × LT + z × s D LT

where z 1.28 from Appendix A for an area under the curve equal to 0.90. By
so much,

ROP= 40 (1) +1.28 (3.33) 1

44.3 cars, or 44.3 (90,000 / 2,000) = 1.994
tons of sodium carbonate
A large hospital uses a certain intravenous solution that it keeps in inventory. The data
the pertinent ones regarding this article are as follows:

a. Design a reorder point control system for this item.

b. Design a periodic control review system for this article.
c. Do you believe that the probability of having stocks is correctly specified to minimize
the costs? Make an evaluation with reference to the point system design
of reorder.

This is a reorder point design under conditions of uncertainty for both demand and time.
of delivery. We assume that there is a probability of stock depletion. Therefore, the quantity of
order is:

Q *= 2DS/ IC= 2 (50) (365) (50) / (0.30) (45) = 367.7 units

ROP = D × LT + z ×s ' D

where

z = 1.04 (see Appendix A) for the area under the curve equal to 0.85 and

s D' = s 2 LDT d 2 + s L2T = 152(7) + (502 ) (22) = 107.6 units

Therefore,

ROP = 50 (7) + 1.04 (107.6) = 461.9 units

This is the design of the periodic review system under uncertainty. The complexity requires that
let's do some approximations here. The time interval for reviewing the stock level
es:
 T * = Q * / D 367.7 / 50 = 7.35 days

theMAXthe level is:

MAX = D(T * + LT) + z ×s ' D

where z = 1.04 y s ' D approaches like:

sD' = T *(+ LT) ( sD2) + D 2 (s2LT )

(7.35 + 7) (152) + 502

(22)
= 115.0 units

Therefore,

MAX= 50 (7.35 + 7) + 1.04 (115.0)

837.1 units

(c) Since the service level is specified, the probability is not set at the optimal level. To know
the stock depletion cost allows us to find the most appropriate service level. Given
It is an iterative process; we use INPOL to perform the calculations.
The optimized service level produces a reorder point design of

Q*= 410 units andROP= 571 pieces

and the relevant total cost decreases from $12,642 partially a up to $8,489. The demand in stock in
a
the part was 97.74 percent, and now it increases to 99.81 percent.
15. A periodic review inventory control method is used for two products that
They must be purchased from the same supplier and at the same time. The data has been collected.
next for these articles:

a. Design the control system for these products. Express how this system will function.
of control.
b. What is the average inventory level for each of these items?
c. What is the level of customer service that can be expected for these items?
d. Let's assume that the review time is set at four weeks. How will they change?
his answers to the previous questions?

(a) Find the common revision time:

T * = 2 (O +∑ s I ) / I∑ C I DI
= 2 (100 + 0) / [(0.3 / 52) (2 × 25 × 2,000 + 1 × 90
×500)
2.5 weeks

Then,

ME ATRO * =A d ( LT) + z A × sDAT * +LT

T *+

wherez= 1.282 forPAG= 0.90

A

METRAO = 2,000(2.5+1.5)+1.282(100)2.5+1.5
* = 8.256 units

METRB O = 500(2.5 + 1.5) + 0.842(70)2.5 + 1.5

* = 2,118 units

wherez= 0.842 paraPAG= 0.80.

B
 The control system works as follows: the stock levels of both items
They review every 2.5 weeks. The reorder size for A is the difference between the available quantity and
8.256 units. The reorder size for Bes is the difference between the available quantity and 2.118.
units.

It is expected that the average amount in inventory will be:

= D × T * / 2 + z ×sDT+ *LT
TO AFFECT

ParaA

AFLIGIRA= 2,000 (2.5) / 2 +1.28 (100) 2.5 +1.5 = 2,756 units

ParaB:

AFLIGIRB= 500 (2.5) / 2 + 0.842 (70) 2.5 + 1.5 = 743 units

The level of service is given by:

SL1 -s'D × me(z) /d ×T *

ParaA:

SLA= 1−1002.5 +1.5 (0.0475) / 2000 (2.5) = 0.998

ForB:

SLB= 1 - 70 2.5 + 1.5 (0.1120) / 500 (2.5) = 0.987

(d) We establish T* = 4 and go through the previous calculations. Thus we have:

*
METRAO = 11,301 units
* METROB = 2,888 units

AFLIGIRA=4.301

SLA= 0.999
AFLIGIRB= 1,138

SL 0 .991
B
A company imports parts from Taiwan through the port of Seattle on the Coast.
West. The parts are intended for their assembly operations on the East Coast.
Shipments are made by rail and take 21 days in transit. The parts are
valued at $250 each at the port, and 40,000 are used annually in operations
of assembly. The inventory handling costs are 25% annually. The rate of
Railroad to the East Coast is $6 for 100 pounds, and the packaged parts weigh 125 pounds each.
one.
As an alternative, road transportation can be used to cross the country in seven.
days. The road rates are $11 per cwt. Do the savings from reducing inventories justify it?
In transit, the highest cost of road transport?

This problem consists of comparing the combined cost of transportation and in transit.
inventory. In tabular form, we have the following annual costs:

Type of cost Formula Lane Truck

Transport R×D 6 (40,000) (1.25) 11 (40.000) (1.25)
$300,000 = $ 550,000
In transit ICDT /365 0.25 (250) (40,000) 0,25 (250) (40,00)
(21) (7)
inventory 36 36
5 5
Total $143,836 $47,945
$ 443,836 $ 597,945

You must select a lane.

 17. In a point in Ohio, a manufacturer of hydraulic equipment (hoses, cylinders, and controls)
consolidates the items in orders produced at various points in the United States.
Consolidated orders are intended for Brazil and can be shipped via an agent.
maritime or air cargo dispatcher. The average order size is 292 lb.
Maritime shipping ($4.94/lb) is cheaper than air cargo ($9.04/lb) but takes longer.
maritime movements from the consolidation center require transportation to the
Baltimore port, waiting time of the ship to load at the port, stops in Savannah
and Miami to pick up and for navigation to São Paulo, Brazil. The total time of
Transit averages 20 days. On the other hand, air shipments only require two days.
of management and transit.
El fabricante posee los artículos en tránsito hasta que llegan al puerto de destino y está
worried about the cost of inventory while in transit. The product in transit
is valued at $185/lb and 20,000 lb are shipped annually. The company's cost of capital is
17% per annum.
From the only point of view of transportation-inventory, what mode of transportation
Should it be used?

The two transportation options from the consolidation point are shown in a diagram in Figure
9-1. The choice of one mode over another depends on more than just transportation costs alone. Because the
transportation modes differ in transit time, the cost of money tied up in goods
during transit it must be considered en la decelection vision. This is in transit
ICDt
the inventory cost is estimated from The following design matrix can be developed.
365

Type of cost Method Air Ocean

Transport R×D $ 180,800 $ 98,800
Inventory in ICDt / 365 3,447* 34,467
transit
Total $ 184,247 $ 133,267
*
CIEt / 365 = 0,17 (185) (20.000) (2) / 365 = 3.447

Ocean seems to be the lowest cost option even when a substantial in-transit inventory cost is included.
The maritime option assumes that the cost of transporting by truck to move the goods from the point of
Consolidation to the port of Baltimore is included in the shipping carrier's fee.
 18A distributor of parts for trucks and buses has a shock absorber part of
belt (B2162H) in inventory. The item has a monthly demand of 169 units with
a standard deviation of 327 units per month, making the demand pattern a bit
disproportionate. The delivery time for the item is four months with a deviation
standard of 0.8 months. The costs of the item are 0.96 each at the factory,
with a transportation charge of $0.048 from the supplier to the distributor. The costs of
inventory holding costs are 20% annually, and the order processing costs are
$10 per order. The probability that is desired to have in stock during the time of
Delivery is at 85%. Inventory records are updated daily and the number of sales
the daily average is eight units.
Develop a minimum-maximum inventory control policy (reorder point system)
for this irregular claim article
.

The demand pattern is definitely uneven, as D = 327> D To develop the min-

max inventory control system, first we find*That is to say,

Q* = 2DS/IC= 2 448.5 units

the ropes

ROP=D×LT+z×s'D+ED

where

z = 1.04 from Appendix A

ED = 8 units the average daily demand rate, y

2 2
s D' = s D L T + ds2 LT
= 3272(4) +1692
667.8 units (0.82)

Then,

ROP= 169 (4) + 1.04 (667.8) + 8

= 1378.5 units

The maximum level is:

METRO* = ROP+Q* -ED

= 1378,5 + 448,5 - 8
1.819 units
19Acme Computer maintains a stock of spare parts nationwide in a warehouse
in Austin, Texas. To provide better customer service, the company will expand the
number of warehouses to ten, and they will all be the same size. The total investment in inventory
en el almacén actual es de $5’000,000.
a. Using the square root law, project the amount of inventory investment that
the distribution system can contain ten warehouses.
b. Suppose that nine stores are operating with $1,000,000 in inventory investment.
in each one. If the company were to consolidate the inventory in three warehouses
of the same size, how much inventory would there be in each of them?

(a) The basic relationship is:

IT= IInorth

We know itI $5,000,000. If there are 10 warehouses, the amount of inventory in

T

one only would be:

I1 = IT/ 10 = 5.000.000 / 3,162 = 1.581.139

The inventory in the 10 warehouses would be $1,581,139×10 = $15,811,390.

(b) The inventory in a single warehouse would be:

IT= 1,000,000 9 = 3,000,000

In each of the three warehouses, we would have:

I= 3,000,000 / 3 = $ 1,732,051

and in the three warehouses, we would have $1,732,051×3 = $5,196,152.

20The California Fruit Growers' Association is a consortium of fruit growers in the
West Coast for product distribution. The association currently operates 24 warehouses.
across the country. For the most recent calendar year, the statistics of the levels
average inventory and warehouse exit points were collected as is
they appear in table 9-10.

a. What overall turnover coefficient can the association achieve? Compare the coefficient
of the rotation of the three smallest warehouses with that of the three largest,
in terms of managed annual product. Suggest why there is a difference.
b. Build the annual product handling curve in inventory manually adapting one
straight line to the data or use a simple linear regression model.
c. Warehouses 1, 12, and 23 will be consolidated into a single warehouse. How much inventory
Would you wait in warehouse one using the curve of the parteb?
d. Warehouse 5 is going to expand into two warehouses. 30% of the annual product handled
it will be assigned to one warehouse and the rest to the other. How much inventory would you estimate could be
news in each warehouse using the question curve?
The turnover index is annual demand (yield) divided by the average level.
of inventory. These ratios for each warehouse and for the total system are shown
in the following table.

Annual Average
Merchandise deposit inventory Rotation
case throughput level proportion

a 21 2.586.217 504,355 5.13

24 4,230,491 796,669 5.31 Average =
5.59
20 6.403.349 1,009,402 6.34
13 6.812.207 1.241.921 5.49
2 16,174,988 2,196,364 7.36
11 16,483,970 1,991,016 8.28
4 17,102,486 2,085,246 8.20
1 21,136,032 2,217,790 9.53
23 22,617,380 3.001.390 7.54
9 24,745,328 2,641,138 9.37
18 25,832,337 3,599,421 7.18
12 26,368,290 2,719,330 9.70
15 28,356,369 4.166.288 6.81
14 28,368,270 3.473.799 8.17
6 40,884,400 5.293.539 7.72
7 43,105,917 6.542.079 6.59
22 44.503.623 2,580,183
17.25
8 47,136,632 5,722,640 8.24
17 47,412,142 5,412,573 8,76
sixteen 48,697,015 5,449,058 8,94
10 57,789,509 6.403.076 9.03
19 75,266,622 7.523.846 10.0
3 78,559,012 9.510.027 0 Promedio =
8. 8.66

26
5 88,226,672 11,443,489 7.71
The overall turnover rate is 8.40. Sort the warehouses by performance and
averaging the turnover rates for the first three and the last three shows that the
smaller volume warehouses have a lower turnover rate (5.59) than the
larger volume warehouses (8.66). There are several reasons why this may be the case:

• The largest warehouses contain the largest volume items, such as items on the line.
These may have lower safety stock compared to the sales volume. Because of the
On the contrary, low-volume warehouses may have more dead stock.
 • There may be initial (fixed) stocks in the warehouses, necessary to open them, that
they become less dominant with higher performance.

(b) Figure 9-2 shows a graph of inventory performance data. It also shows a
fitted linear regression line to the data. The equation of this line is:

Inventario = 200,168 + 0.1132×Rendimiento

FIGURE 9-2 Inventory and storage lot of Thruput for the Association of
Fruit Producers of California

12

10

It is in English
6

0
0 20 40 60 80 100

Annual warehouse throughput, $ (Millions)

(c) The total output of the three warehouses is:

Deposit
Performance
o1
$21,136,032
12
26,368,290
23
22,617,380
Total $70,121,702

Using this total volume and reading the inventory level from Figure 9-2 or using the
regression equation, we have:

Inventario = 200,168 + .01132 (70,121,702)

= $ 8,137,945
 Warehouse 5 has a yield of $88,226,672. Dividing this yield by 30 for
one hundred and one 70 percent, we have:

0,30×88.226.672 = 26.468.002
0,70×88.226.672 = 61,758,670
88,226,672

Estimating the inventory for each of the new warehouses using the equation of
regression, we have:

Inventario = 200,168 + 0.1132×26,468,002 = $ 3,196,346

Inventory = 200,168 + 0.1132×61,758,670 = $7,191,249

for a total inventory in both warehouses of $10,387,595

[Link] items in an inventory have the following characteristics:

The average investment in these items should not exceed $3,000. The items are
They buy from different vendors and do not order together. Determine the quantities.
to request these items, in such a way that the investment limit is not exceeded.

The order quantity for each item when there is no restriction on inventory investment is:

Q* = 2DS/ IC

First, we find the unrestricted order quantities.

Q A* = 2 (51,000)(10) / 0.25(1.7) = 1,527 units

Q B*= 2 (25,000)(10) / 0.25(3.25)784units

=

Q C*= 2 (9,000)(10) / 0.25(2.50)537

= units

The total investment in inventory for these items is:

IV = CA(Q A / 2) + C B (QB/ 2) + CC(QC/ 2)

=1.75 (1527/2) + 3.25 (784/2) + 2.50 (537/2)
$3,281.38
 Since the total investment limit is exceeded, we need to review the amounts of the
order. For each product:

Q* = 2DS/ [C( I+α )]

For productA:

Q A* = 2 (51.000)(10) / [1.75(0.25 +α )]

For productB:

Q B* = 2 (25000)(10) / [3,25(0,25 +α )]

For product C:

Q C*= 2 (9.000)(10) / [2,50(0,25 +α )]

Now, the investment limit must be respected so that:

3.000 = CA(QA/ 2) +CB(QB/ 2) +CC(QC/ 2)

Expanding we have:

3.000 = 1.75 2 (51.000) (10) / [1.75 (0.25 +α )]

+ 3.25 2 (25,000) (10) / [3.25 (0.25 +α )]

+ 2.50 2 (9,000) (10) / [2.50 (0.25 +α )]

Now we need to find a value α through trial and error that satisfies this equation. We
You can set up a test value table.

Investment in
Total
inventory
α A C value, $
B
0.03 1,262.4 1,204.5 633.8 3,100.84
4 3 7
0.04 1,240.4 1,183.5 622.8 3,046.90
8 8 4
0.045 1,229.9 1,173.5 617.5 3,020.97
2 1 4
0.049 1,221.6 1,165.6 613.4 3.000,70
7 3 0
0.05 1,219.6 1,163.6 612.3 2,995.69
3 9 7
0.10 1.129,1 1,077.3 566.9 2,773.47
6 6 5

When the term I + α is the same for all products, as in this case, α can be found.
directly from Equation 10-30.

We can substitute the value of α = 0.049 in the equation ofQ*and to resolve.

Therefore, we have:

Q A* = 2 (51000)(10) / [1.75(0.25 + 0.049 = 1396 units

Q B*= 2 (25.000)(10) / [3,25(0,25 + 0.049 =717units

Q C*= 2 (9.000)(10) / [2,50(0,25 + 0.049 = 491 units

Check:

1,75 (1396) / 2 + 3,25 (717) / 2 + 2,50 (491) / 2 = $ 3000

22.A company has three items in its inventory that it buys from the same seller and that
they are sent together on the same delivery truck. The truck has a capacity of
30,000 pounds. The items are under the periodic review method of inventory control.
and are purchased through a single purchase order that costs $60 to prepare. The
The handling cost is 25% of the value of each item. Other information about the items.
is the following:

Due to economic considerations, the shipment size must not exceed capacity.
of the truck for the combined order. What size should the quantity be?
order for each item? [Tip: equation 9-29 becomes capacity
from the truck, equation (9-30) can be expressed again as follows:

And remember that Q* = D X T*. The weight of the product is wi and the annual demand is Dies.

First we check if the truck's capacity will be exceeded. Since three must be placed
items in the truck at the same time, the items are arranged together. The interval
to order follow Equation 9-23, or:

T 2 (60 + 0)
* = 2 (O =
0.25 [50 (100) (52) + 30 (300) (52) + 25
+∑S I ) (200) (52)]
120
= ∑C(988
I0.25 I
0.022 years or 1.144 weeks

Now, from 000)

DI

∑DT * wI I ≤ Truck capacity

I

[100 (70) + 300 (60) + 200 (25)] [1.144] = 34,320 pounds.

The truck capacity of 30,000 lb. has been exceeded, and the order quantity must be reduced or the
order interval. Given the revised Equation 9-31, the increment to add to ai can be
found. That is to say,

2O
α= -I
Truck capacity I
∑C
2
D
∑ DIwI I

2 (60)
= 30,000 2 0.25
(50 (10) (52) + 30 (30) (52) + 25 (20) (52))
100 (52) (70) + 300 (52) (60) + 200 (52)
(10)]
120
0.25
30,000
2(988.000)
2,340,000
=0,73895 - 0,25 = 0,48895

ReviewT*,the order interval by:

2 (O+∑S 2(60 + 0)
T *= =
(0.25 + 0.48895) [50 (100) (52) + 30 (300) (52) + 25
)I
(200) (52)
= (I+α) 120 =0.01282 years or
0.73895 (988
000)
0.6667 weeks ∑
C I DI

Once again, we check that it has not been exceeded.

truck capacity.

[100 (70) + 300 (60) + 200 (25)] [0.66667] = 30.000

pounds.

Therefore, place an order every 4.7 or

approximately five days.
23Five items in a retail inventory complete the volume of the preserved items.
Inventory levels are controlled using the reorder point method. They have
un tiempo de entrega fijo de 15 días, un costo de compra de pedido de $35 por pedido
and per item, and a daily inventory handling cost of 0.08219%. Another
The information of the articles is as follows:

The probability of having stock during the delivery time is set at 95%. The
forecast errors are normally distributed.
What is the average total inventory, in boxes, for these items?

The average inventory of each item is given by:

Q*
AFLIGIR= + z×s 'D

wheres'D= sDLTy *
Q is found forQ* 2 .z@ 95% = 1.65 of normal
=
D
distribution in Appendix A. The results of these calculations can
S be tabulated.

A B C D me
I
sD' 7.75 15.49 19.36 11.62 27.11
Q* 188,38 238.28 421,23 361.98
C 565.14
AFLIGIR106,98
144.70 242.56 200.16 327.30

Sumando elAFLIGIRpara cada producto da un inventario total de 1.022 cajas.

24.A retail store manages its inventory items using the reorder point method.
reorder; however, the shelf space for these items is limited. (Retailers
assign a certain amount of shelf space for each item in the store.) Orders
se colocan en un centro de distribución central para su reaprovisionamiento. Un artículo
Typical in the store could have the following data:

What order quantity should be used to not exceed the shelf space restriction?

The maximum quantity of an item that will appear on a shelf can be approximated as the order quantity.
plus the safety stock, or

Q + z × s ' D ≤250 boxes

where @ z 93% = 1.48delAppendix A y s D = s' D LT =19 1 = [Link]

the economic order quantity is

2 = 2 (123 × 52)
Q* = (1,25) 255.42 boxes
D
0.19 (1.29)
S
I shelf space limit will be exceeded by this order amount.
Verification to see if the

C
255.42 + 1.48 (19) = 283.54 boxes

The quantity exceeds the permitted 250. Subtracting the safety stock from the limit gives
250 - 28 = 222 boxes. The quantity of the order must be limited to this amount.
25A Mexican company, Recos Cementos, produces and distributes cement and concrete.
volume and in bags to the construction market. The inventory remains at nine
service terminals for customers (contractors) throughout the country. In figure 9-24 is
show a graph of the average inventory level at a terminal against the shipments
annual from the terminal to each of the nine terminals.
What can you tell the company about its performance and opportunities in management?
of inventories?
The graph of the average inventory to the performance of the installation for the period (shipments) provides an indication
General about how the company is collectively managing its inventory for all items in stock.
We can see that the relationship is linear with an intersection of zero. This suggests that the company is
setting your inventory levels directly to the level of demand (performance). It may be in effect
an inventory policy, such as storing several weeks of demand.

In general, the inventory policy seems to be well executed in the sense that the line
The regression fits quite well to each warehouse point. The terminal with a level of
Inventory of $6,000 seems to be an outlier and should be investigated. If its high turnover rate
it will align with the other terminals, it could achieve an inventory reduction from $6,000 to $
4,000 on average.
The inventory policy for on-demand stock should be questioned. An appropriate
The inventory policy should demonstrate some economies of scale, that is, the inventory turnover ratio.
it should decrease as the performance of the terminal increases. Considering that the current policy is of
formularioI= 0,012D, una mejor política seríaI=kD0,7, dóndeDrepresenta el rendimiento del
terminal and the average inventory level. The coefficient 0.012 for the current policy is found
like the ratio of 6,000 / 500,000 = 0.0.12 for the last data point in the graph. loskes
It is necessary to estimate the value of the improved policy. From the group of performance facilities.
lower, the average inventory level is approximately $2,000 with a yield
average of around $180,000. Therefore, from

I= kD0.7
2.000 =k(180,000)0.7
2,000 = k(4,771.894)
2,000
k= 4.771.894
k 0.419

By reading the parcel values, the following table can be developed that shows the reduction of
inventory that could be expected from the revised inventory policy. (Note: If the values of
inventory performance cannot be read properly in the chart, the values in the
The following table can be provided to the students.

Real Estimated inventory, $ Inventory

Term Inventory Shipments, I0.012D revised, $
nal $ $ I0.419D0.7
1 2.000 150,000 1.800 1.760
2 1.950 195,000 2,340 2,115
3 2.000 200.000 2,400 2,152
4 2.050 200,000 2.400 2,152
 5 3.900 320,000 3.840 2,991
6 6,000 330,000 3.960 3,056
7 4,500 390,000 4.680 3.435
8 4.300 410,000 4.920 3,558
9 5,500 500,000 6,000 4.088
Total 32.200 2,695,000 32,340 25.307
s

The review of the inventory control policy has the potential to reduce inventory.

3 2 .340 -
political line o r X100 = 21.7%.
25.307
32,340

26A photographic equipment distributor serves retailers in two cities from two warehouses.
Retailers are usually supplied from the nearest warehouse.
to save on transportation costs. There are two separate inventories of them.
products. Although the distributor maintains an average availability rate of
95%, occasional stockouts can lead to retailers' orders
do not supply or place them in pending orders. Since it is highly unlikely
that an item is out of stock in both warehouses at the same time, the distributor
is considering the possibility of supplying the orders of the out-of-stock items in
a region from the inventory of the other, that is to say, to cross-supply the orders.
It is possible that the system inventories are lower, but the extra transportation cost of

The dispatch from a secondary location has to be balanced against the reduction.
of inventory cost.
To test the idea, a camera (valued at $400 in inventory) is selected. The costs
Shipping and handling from a secondary warehouse is $12 per camera. The handling cost
The inventory is 20% per year. The lead time for replenishing this chamber
It's two months.
The monthly demand forecast in the first city is an average of 42 cameras.
with a standard deviation of seven cameras. In the second city, the average demand is
of 75 cameras, with a standard deviation of 13 cameras. The two cities combined have
an estimated demand of 117 cameras, and a standard deviation of
cameras.
Se usa un método de punto de reorden de control de inventarios para controlar el inventario
of high value and the replenishment quantities are determined from the formula
EOQ. Currently, an inventory turnover ratio of six is achieved in an inventory.
well run (_ = 0.7).
Should the item be cross-stocked or should it only be handled from the warehouse?
assigned?

We can use the decision curves from Figure 9-23 in the text to answer this question since
it applies to a filling rate of 95 percent and an α = 0.7. First, determine K for a curve of
inventory performance for the item, which is

K= D1−α (117X12)0.3
= = 1,466
FOR 6

Next,

X = tD0.3
12 (117 X12)0.3 = 0.90
ICK = 0.20 (400)
(1,466)

and withz≈1.96 of Appendix A

zs LT 1.96 (15) 2
Y= = 0.18
KDa (1,466) (117X12)0.7

The demand ratio 42/177 = 0.36. The intersection of deryX is located below the curve Y.
(use curveY = 0.25), therefore, do not fill in crosswise.
[Link]'s suppose that a company has two of its warehouses that it would like to consolidate into a
warehouse
central. Three high-selling items stored in both warehouses are selected for
the evaluation. Based on the monthly demand forecasts in the two territories of the
warehouses, the following statistics are known:

The order quantities are determined locally in each warehouse using the
CPFs are requested from separate sellers with a processing cost of
$25 per order. The restocking delivery time averages three weeks,
0.75 months. The inventory handling costs are 24% annually. The service level
during the ordering cycle is set at 95 percent.
How much inventory can be saved by grouping risks, if the inventory
is consolidated in a central facility?
Regular stock
For two warehouses, calculate the regular stock of the three products.

2d
Q IC
S RS = =
22
2
3,000
Product A RS A1 = (25) 354 pieces
2
0.02
2
(15)
(5.000)
RS A2 = (25) =457 pieces
2
0.02
15

RSB1= =408 pieces

Product
B
 2
8,000
(25)
2
0.02
2
RSB2= pieces 30
(9.500)
2 (25)
0.02
(30)
2
12,500
Product C RSC1 = (25) =559 pieces
2
0.02 (25)
2
15,000
RSC2 = (25) 612 pieces
2
0.02 (25)

The regular system inventory for two warehouses isRS2W= 354 + 457 + 408 + 445 + 559 + 612
= 2.835.

Regular stock for a central warehouse

2 (8.000)
25
RS A = 0.02 (15) =577 pieces
2
2 (17.500)
(25)
RSB= 0.022(30)
=604 pieces
2 (27.500)
(25)
RSC = =829 pieces
20.02 (25)

The total regular stock of the central warehouse is RS1W=577 + 604 + 828 = 2.009 units.

Safety stock

Product A
SS= zsDLT
SSA1 = 1.65 (500) 0.75 = 714SS units
A2 = 1.65 (700) 0.75 = 1000units

wherez@ 0.95 = 1.65 of Appendix A

Product B
SSB1= 1.65 (250) 0.75 = 357 units SSB
2 = 1.65 (335) 0.75 = 479 units

Product C
 SS= zsDLT
SSC1 = 1.65 (3500) 0.75 = 5.001units
SSC2 = 1.65 (2500) 0.75 = 3572units

The safety stock of the system is SS2W714 + 1,000 + 357 + 479 + 5,001 + 3,572 = 11,123 units
For each product, the estimated standard deviation of demand in the central warehouse
es:

sA=
s1 + s 2 =
2 2 5002 + 7002 = 860 units 250
sB=
2 + 3352= 418 units
sB=
35002 + 25002 = 4.301 units

The safety stock is:

SS= zs LT
SSA= 1.65 (860) 0.75 = 1229 units
SSB= 1,65 (418) 0.75 = 597 units
SSC= 1.65 (4.301). 75 = 6,146 units

Total safety stock in the central warehouse1W1,229 + 597 + 6,146 = 7,972 units.

Total inventory with two warehousesRS2W+ SS2W2,835 + 11,123 = 13,958 units and
for a central warehouseRS1W+ SS1W= 2.009 + 7.972 = 9.981 units. Centralize the
Inventory decreases by 13,958 - 9,981 = 3,977 units.
28-.A distributor is positioning itself in the supply chain between its customers and suppliers.
You know that customers maintain inventories that should be considered in the
planning their own inventory levels. With a spirit of cooperation, the customers
they share their final demand data with the distributor. For a particular item
supplied by the distributor to three clients in their territory, the monthly demand
for an article valued at the customer level at $35 per unit is the following:

The item has a slightly lower value at the distributor ($39 per unit), given
that some costs, such as transportation to customers, have not yet been added.
the inventory handling cost is estimated at 20% annually at both levels. The placement cost
The minimum order from customers is $50 per order. The distributor takes time to supply.
Customers take two weeks, but it takes vendors four weeks to supply them.
restocking orders from the distributor. Customers set their probabilities of
to have the stock during the order cycle at 95%, while the distributor uses the
90%. Both levels use the reorder point inventory control method. The distributor
place the orders with the seller for 2,000 units to obtain a discount
of purchase.
How much inventory of this item should the distributor stock if it is assumed
Is there no inventory in transit to the customers?

The solution to this multi-level inventory control problem is addressed using the method of
basic stock control system. The idea is that the inventory at any level is to plan its position.
of inventory plus the inventory of all subsequent steps.
 First, calculate the average inventory levels for each customer. This requires finding
Q in theEOQ
Q and the safety stock. is located

formula. For client 1

Q1 = 2 (425X12) = 270 units

50
0.2 (35)
Q
to influence=1 +zs
1 D 270
2 1
LT3 = + 1.65 (65) 0.5 = 211 units
2

where z@ 0.95 = 1.65 from Appendix A

For customer 2

2 (333X12)
Q2 = (50) = 239 units
0.2 (35)

239
FLYING2 Q2 + zsD2 + 1.65 (52) 0.5 = 180 units
LT3 = 2 2

For client 3

2 (276X12)
Q3 = (50) = 218 units
0.2 (35)
Q
to flourish +zs
D3
218
3
2
=3 L= + 1.65 (43) 0.5 = 159 units
T 2
3
The customer's total staggered inventory is AFLIGIRC= 211 + 180 + 159 = 550 units

For the ladder distributors

QD= 2.000
units

Q
AFLIGIR D + zs Lithuania
= 2.000
D
+ 1.28 (94) 1.0 = 1,120 units
=
D
2 2 DD

where z@ 0.90 = 1.28 of Appendix A

The expected inventory that the distributor will maintain is the distributor's stepped inventory.
less the combined inventory for customers, or 1,120 - 550 = 570 units.