1. Consider the following scenario for a retailing firm selling product A.
Weekly demand: mean=20, Std. Dev = 10. The firm plans to follow continuous review
policy for the inventory management of product A at their shop. The lead time for
replenishment of product A from their supplier is 3 weeks. The order service level set
by top management is 97%. Please calculate the following:
a. Reorder point (Answer: 60+17.32*1.88=93)
b. Reorder quantity. Ordering cost for the retailer is Rs. 100. Average annual
end customer demand is 1000. Inventory carrying cost can be taken as 20%.
Per unit purchase cost is Rs. 20. (Answer: 224)
c. Calculate the reorder point if the company management decides to follow
unit service level with fill rate of 99% and reorder quantity of 200. (Answer:
60+.84*17.32=75)
2. Consider a simplified situation of the nature of HP case discussed in the class. There
are two products variants that are being shipped to another country (it takes 5
weeks for the shipment) for sale. The company has a warehouse in the country of
sale. Following are the details about the products:
weekly demand
mean
sigma
Product 1
100
20
Product 2
200
80
The company is following continuous review policy.
a. What is the combined safety stock (safety stock for P1 + safety stock for P2)
required to be stored (at the warehouse) if the company has decided on the safety
factor of k=2? (Answer: 447)
b. Assume the company has decided to go for delayed differentiation, meaning they
only send inventory in terms of generic product to the warehouse and then
customize it (in either of the variant) as and when the demand occurs. What is the
amount of safety stock required to be stored (at the warehouse) of the generic
product if the company has decided on the safety factor of k=2? (Answer: 369)
