Lecture 8

Question 1

What role does inventory play in the supply chain?

Answer 1

overstocking - liquidation, obsolescence, holding

under stocking - lost margin and future sales

Question 2

What are the holding cost metrics?

Answer 2

C: unit product cost (£ per unit)
h: annual holding cost as % of unit product cost [% per year]
H = h.C annual unit holding cost [£ per unit per year]

Question 3

what is H - holding cost per unit year equation

Answer 3

H = hC
h = holding cost per unit per year
C = cost per unit

Question 4

What is Q (EOQ) equation?

Economic Order Quantity

Answer 4

Q - optimal lot size
Q = SQRT 2DS/H
D = annual demand
H = holding cost per unit per year
S = setup or order cost

Question 5

What is T?

Answer 5

T - optimal reorder interval (or cycle time)
T = SQRT 2S/DH
S - setup or order cost
D - annual demand
H - holding cost per year as a fraction of product cost

Question 6

what is the trade off in deciding the optimal batch size?

Answer 6

between fixed order cost and holding cost

Question 7

if lot size is reduced by a facotr of k by what factor does order cost have to be reduced by?

Answer 7

k^2

Question 8

what does batching multiple products and aggregation allow?

Answer 8

firms to lower lot size without increasing cost

Question 9

when is complete aggregation effective

Answer 9

if product specific fixed cost is a small fraction of joint fixed cost (or is all products have identical characteristics such as demand, uncertainty and cost)

Question 10

when is tailored aggregation effective?

Answer 10

if the product characteristics are different and product specific fixed cost is a large fraction of join fixed cost (in this case, complete aggregation may be worse than no aggregation.

Question 11

what is the the replenishment policy?

Answer 11

order fixed quantitity when total inventory drops below reorder point (ROP)

Question 12

what is a the measure of product availibility

Answer 12

cycle service level (CSL)

Question 13

what are factors driving safety inventory?

Answer 13

level of service
demand uncertainty
replenishment lead time

Question 14

What are the three types of Aggregation?

Answer 14

No Aggregation - each product ordered seperately
Complete - All delivered together on same truck
Tailored - selected ordered together

Question 15

How do you calculate lead time demand

Answer 15

DL = D*L
DL = mean demand during lead time
D = average demand per period
L = Lead time for replenishment

Question 16

How do you calculate CSL

Answer 16

CSL = NORMDIST(ROP,DL, stdrdDL, 1)

Question 17

how do you calculate ROP

Answer 17

DL + ss

ss - safety inventory

Question 18

how do you calculate safety inventory

Answer 18

ss = NORMSINV (CSL) x standrdDL
ROP - DL
theregore
ss = NORMSINV(CSL)stndrdDL = ROP = DL + ss
ss = NORMSINV (CSL) * stndrdDD * SQRTL

Question 19

what is the average inventory

Answer 19

Q/2 + ss

Question 20

what is the profit calculation

Answer 20

p-c

price - cost

Question 21

What is cost of overstocking calculation

Answer 21

c - s

cost - salvage value

Question 22

if demand is normally distributed what is the optimal cycle service level calculation?

Answer 22

CSL = Cu/Cu + Co