Inventory_Homework9

International University, HCMC School of IEM – LSCM Program
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INVENTORY MANAGEMENT
HOMEWORK 9
Problem 1: A BMW dealership has k =4 retail outlets serving the entire Chicago
area (disaggregate option). Weekly demand at each outlet is normally
distributed, with a mean of D=25 cars and a standard deviation of ❑D =5. The
lead time for replenishment from the manufacturer is L=2 weeks. Each outlet
covers a separate geographic area, and the correlation of demand across any pair
of areas is ρ . The dealership is considering the possibility of replacing the four
outlets with a single large outlet (aggregate option). Assume that the demand in
the central outlet is the sum of the demand across all four areas. The dealership
is targeting a CSL of 0.90. Compare the level of safety inventory needed in the
two options as the correlation coefficient for the following cases:
 Case 1: ρ=0
 Case 2: ρ=0.8
 Case 3: ρ=1
 Case 4: ρ=−0.6
Problem 2: Consider a two-stage serial process where the second stage is a

rather minor operation adding little extra value to the product. To be more
specific, suppose we have an item with these characteristics (borrowing the
notation of “W” for warehouse, or primary stage and “R” for retailer, or finishing
stage).
 D = 1,000 units/year
 v W = $5/unit
 v R = $6/unit
 r = 0.24 $/$/year
 AW = $20
 A R = $10
Find QW , Q R, and n.
Problem 3: A warehouse supplies a single retailer with a product. The

warehouse’s purchasing lead time is 3 weeks and the lead time for the retailer
(from the warehouse) is 1 week. Assume that forecast errors are normally
distributed with the σ for 1 week being 70 units, and that σ t= √t σ 1. The annual
demand rate is 12,000 units, and the following data have been gathered:
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v W = $32/unit, v R = $38/unit, r = 0.22 $/$/year, n = 2, or the warehouse orders

two batches of the retailer’s order quantity at one time. The retailer’s order
quantity is Q R = 500 units. Finally, suppose that the fractional charge per unit
short, B2, is set at 0.65. Find the reorder point for both locations.
Problem 4: A retailer supplies a small storefront outlet with a unique product. In

a sense, the retailer serves as the warehouse for this outlet. The retailers’
purchasing lead time is 2 weeks and the lead time for the outlet from the retailer
is also 2 weeks, primarily due to order handling time. Assume that forecast
errors are normally distributed with the σ for 1 week being 10 units, and that
σ t= √ t σ 1. The annual demand rate is 2,000 units, and the following data have
been gathered: v W = $6/unit, v R = $8/unit, r = 0.24 $/$/year, n = 2, or the retailer
orders two batches of the outlets order quantity at one time. The outlet’s order
quantity is Q R = 200 units. Finally, suppose that the fractional charge per unit
short, B2, is set at 0.4. Find the reorder point for both locations.
Problem 5:
1. A retailer supplies a small storefront outlet with a unique product. In a
sense, the retailer serves as the warehouse for this outlet. The retailers’
purchasing lead time is 3 weeks and the lead time for the outlet from the
retailer is 1 week, primarily due to order handling time. Assume that
forecast errors are normally distributed with the σ for 1 week being 50
units, and that σ t= √t σ 1. The annual demand rate is 2,500 units, and the
following data have been gathered: v W = $5/unit, v R = $7/unit, r = 0.24
$/$/year, n = 3, or the retailer orders three batches of the outlets order
quantity at one time. The outlet’s order quantity is Q R = 300 units. Finally,
suppose that the fractional charge per unit short, B2, is set at 0.55. Find the
reorder point for both locations.
2. Consider a warehouse that serves five retailers that face nearly identical
costs and demands. The warehouse holds no stock, and therefore serves as
a break-bulk facility. They order from their supplier, receive the products,
and immediately distribute them to the five retailers. Find the order-up-to
level for the warehouse assuming the following data:
R=2 weeks
J=5 retailers
B3=2 $ / $/unit time
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r =0.24 $/ $/unit time

LW =2.5 weeks
LR =2 weeks
Weekly demand
^x j=45 units for all retailers
σ j=12 units for all retailers
You are given three values of the system-wide order-up-to level:

 S=1,465
 S=1,564
 S=1,645
a) Fill in the table below with detailed formula and calculation for sub-
questions (1) and (2). You only need to write the results of sub-questions
(3) to (6).
S = 1,465 S = 1,564 S = 1,645
i
ki 1− pu ≥ (k i ) ki 1− pu ≥ (k i ) ki 1− pu ≥ (k i )
0 2.027 0.979 2.909 0.998 3.630 1.000

1 (1) (2) (3) (4) (5) (6)
b) Conduct a test to find out which value of S is suitable for this arborescent
system.
If three retailers each have an inventory position of 160 units, while the other
two have 200 units, what amount should be allocated to each?

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International University, HCMC School of IEM – LSCM Program

Student Full name:

Problem 2: Consider a two-stage serial process where the second stage is a

Problem 3: A warehouse supplies a single retailer with a product. The

v W = $32/unit, v R = $38/unit, r = 0.22 $/$/year, n = 2, or the warehouse orders

Problem 4: A retailer supplies a small storefront outlet with a unique product. In

r =0.24 $/ $/unit time

σ j=12 units for all retailers

You are given three values of the system-wide order-up-to level:

0 2.027 0.979 2.909 0.998 3.630 1.000

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