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.