Explain the concept of replacing inventory


Problem 1: List how a reduction in lead time can help a supply chain reduce its inventory buffer without hurting customer service?

Problem 2: Why are Internet Retailers often able to provide a variety of different products for sale with less inventory than traditional 'bricks and mortar' retail stores?

Problem 3: Explain the concept of replacing inventory by information within an organization.

Problem 4: Why should a customer be concerned about transit inventory cost, if they pay for the inventory only when the merchandise arrives at their premises?

Problem 5: Fine Garments Case:

The Fine Garments Company sells fashion clothing.  The forecasted annual demand for its premium leather jacket is 1200.  The order processing cost per da is $25, and the inventory holding cost is $50/item/year.

The company wants to use a reorder point system.  It has the order quantity set at 35.  To allow for uncertainties in delivery and in customer demand it wishes to hold 4 weeks of demand as safety stock.  What should its reorder point be if the delivery lead time is 2 weeks?

Hamilton Fabricators Case:

Hamilton Fabricators at Te Rapa orders steel plates from the Te Akau steel plant on a regular basis.  An investigation revealed the following details:  annual demand = 5,000 tons, cost of steel = $2,000/ton, current order size = 500 tons transported by TranzRail, TranzRail transport cost = $100/ton, safety inventory carried = 50% of demand during replenishment lead time, Inventory holding cost = 25% of purchase price per year, replenishment lead time = 5 days.

Calculate

  • the transit inventory cost,
  • the safety inventory cost, and
  • the transportation cost on an annual basis.

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Supply Chain Management: Explain the concept of replacing inventory
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