Operations Management

Operations Management

The manager of a construction firm has determined from historical records that demand for cement averages 5 tons per week with a standard deviation of 3 tons. The supply lead time is 4 weeks. The cost of a ton of cement is $100 and inventory carrying cost is estimated at an annual rate of 30%. The cost of placing an order is $96.

 [Assume 50 weeks in a year.]

Compute the following:

a.       Economic order quantity

b.      Number of orders per year

c.       Cycle length (i.e., number of weeks between consecutive orders)

d.      Average inventory level

e.      Total annual cost of ordering + inventory carrying

f.        Compute the reorder point and the corresponding safety stock for each of the following service levels:

                                  i.            90%

                                 ii.            95%

                               iii.            99%

                               iv.            99.9%

                     v.       99.99%