1. You have a product in which inventory is taken frequently, rather than once or twice per year. Under what cases could your inventory of this product be computerized?
2. In cases where demand is difficult to predict, which probability models would you use so that the risk associated with stock out is managed? Briefly describe how each model would be used.
3. Assume you are building custom motorcycles. All custom bikes use some standard parts. Part number HD-60 is stocked in your inventory of component parts. Each year you use about 2,000 HD-60 components at a cost of $25 each. Storage costs, which include insurance and cost of capital, amount to $5 per unit of average inventory. Every time an order is placed for HD-60 components, it costs $10.
(a) How many items of HD-60 should be ordered at a time?
(b) What are the annual costs of ordering HD-60 components?
(c) What is the annual cost of storing HD-60 components?