PROBLEM: INVENTORY MANAGEMENT (Chapter 12)

Problem-01:
Fred Jacobs, assistant manager of Home and Hearth, is reviewing the cost associated with the stores best-selling frying pan. The
data available to Mr. Jacobs concerning this frying pan follow.

a)
b)

Demand = 20units/week
Order cost = $75/ order
Holding cost = $15/ unit/yr.
Home and Hearth operates 50 weeks per year.
The current order quantity is 125 units per order. What is the annual ordering Cost, holding cost and total cost?
Jacobs has recently learned of the economic order quantity in his Operations management class. If Home and Hearth
implemented the EOQ, what are the changes Jacob found in ordering cost, holding cost and total cost?

Problem-02: (Solved problem 3 page 436 krajewski)

A regional warehouse purchases hand tools from various suppliers and than distribute them on demand to retailers in the region.
The warehouse operates 5 days per week, 52 weeks per year. The following data are available for a particular item.

a)
b)
c)
d)
e)

Average daily demand = 100 units

Standard deviation of daily demand = 30 units
Lead time = 3 days
Holding cost = $ 9. 4/unit/year
Ordering cost = $ 35/order
Cycle-service level = 92 % (Z = 1.4 )
Current on-hand inventory is = 380 units with no open orders or backorders
What is the economic order quantity (EOQ)? What would be the average time between orders?
What is the desired safety stock level if the company has a policy of maintaining a 92 percent cycle-service level?
What is the reorder point if the company decides to have a 92 percent Cycle-service level?
Current on-hand inventory is = 380 units with no open orders or backorders and an inventory withdrawal of 10 units
was just made. Is it time to reorder?
If on-hand inventory is 40 units, there is an open order for 440 units and there are no back orders, should a new order
be placed?

Problem-03: (Solved problem 4 page 437 krajewski)

Suppose that a periodic review system is used at the warehouse, but otherwise the data are the same as in problem 3
a)
b)
c)
d)

What is the value of period P on the basis of EOQ.

What is the desired safety stock in P system?
What is the value of the target inventory level?
Its time to review the item. On-hand inventory is 40 units. There is a schedule receipt of 440 units, and there is no
backorders. How much should be reordered?

Problem-04: (Exercise problem 7 page 441 krajewski)

Sams Cat Hotel operates 52 weeks per year, 6 days per week and uses a continuous review system. It purchases kitty litter for $
11.7 per bag. The following information is available about these bags.
Demand
= 90 bags/week
Order cost
= $54/ order
Annual Holding cost
= 27% of the cost.
Desired Cycle-service level = 80 %
Lead time
= 3 weeks
Standard deviation of weekly demand= 15 bags
Current on hand inventory is 320 bags, with no open orders or back orders.
a) What is the economic order quantity (EOQ)? What would be the average time between orders?
b) What is the desired safety stock level?
c) What is the reorder point?
d) An inventory withdrawal of 10 bags was just made. Is it time to reorder?
e) The store currently uses a lot size of 500 bags. What is the annual holding cost, ordering cost and total cost of this
policy?
f) What would be the annual cost saved by shifting from 500 bags lot size to EOQ?

Problem-05: (Exercise problem 16 page 442 krajewski)

Suppose that Sams Cat Hotel in problem 4uses a P system instead of Q system, but otherwise the data are the same
as in problem 4.
a)

What P and T should be used? Round to the nearest week.

b) How much more safety stock is needed than with a Q system?

c)

It is time for periodic review. How much kitty litter should be re-ordered?

Problem-06: (Exercise problem 17 page 442 krajewski)

Your firm uses a continuous review system and operates 52 weeks per year. One of the SKUs has the following
characteristics.
Demand
= 20,000 units/year
Ordering and set-up cost
= $ 40 per order
Holding cost
= $ 2 per unit per year
Lead time
=2 weeks
Cycle service level
= 95%
Demand is normally distributed with a Standard deviation of weekly demand of 100 units.
Current on-hand inventory is 1040 units, with no scheduled receipt and no backorders.
a)
b)
c)
d)

Calculate the items EOQ. What is the average time between orders in weeks?
Find the safety stock and re-order point that provides a 95% cycle service level.
For these policies, what are the annual cost of (i) holding the cycle inventory and (ii) placing orders.
A withdrawal of 15 units just occurred, is it time to re-order?

Problem-07: (Exercise problem 18page 442 krajewski)

Suppose that your firm uses a periodic review system but otherwise the data are the same as in problem 8.
a) Calculate the P that gives approximately the same number of orders per year as the EOQ. Round your
answer to the nearest week
b) Find the safety stock and the target inventory level that provide a 95% cycle service level.
c) How much larger is the safety stock than with a Q system?

Problem-08: (Exercise problem 22 page 443 krajewski)

5.

A Golf specialty wholesaler operates 50 weeks per year. Management is trying to determine an inventory
policy for its 1-irons which have the following characteristics:
Demand
= 2000 units/year
Ordering and set-up cost
= $ 40 per order
Holding cost
= $ 5 per unit per year
Lead time
=4 weeks
Standard deviation of weekly demand
= 3 units
Cycle service level
= 90% (Z = 1.4)
a) If the company uses a periodic review system, what should P and T be? Round P to the nearest weeks.
b) If the company uses a continuous review system, what should R be?

Problem-04: (Exercise problem 7 page 441 krajewski)

Sams Cat Hotel
a. Economic order quantity
d = 90/week
D = (90 bags/week)(52 weeks/yr) = 4,680
S = $54
Price = $11.70
H = (27%)($11.70) = $3.16

EOQ

2 DS

2(4,680)($ 54)
159,949.37
$3.16
= 399.93, or 400 bags.

Time between orders, in weeks

Q 400

0.08547 years 4.44 weeks

D 4680
b. Reorder point, R
R = demand during protection interval + safety stock
Demand during protection interval = d L = 90 * 3 = 270 bags
Safety stock = zdLT
. .
When the desired cycle-service level is 80%, z 084

dLT d L = 15 3 = 25.98 or 26
Safety stock = 0.84 * 26 = 21.82, or 22 bags
R 270 22 292

c. Initial inventory position = OH + SR BO = 320 + 0 0

320 10 = 310.
Because inventory position remains above 292, it is not yet time to
place an order.

d. Annual holding cost

Q
500
27% $11.70
H
2
2
$789.75

Annual ordering cost

D
4, 680
S
$54
Q
500
$505.44

When the EOQ is used these two costs are equal. When Q 500 , the
annual holding cost is larger than the ordering cost, therefore Q is too
large. Total costs are $789.75 + $505.44 = $1,295.19.
e. Annual holding cost
Q
400
27% $11.70
H
2
2
$631.80

Annual ordering cost

D
4, 680
S
$54
Q
400
$631.80

Total cost using EOQ is $1,263.60, which is $31.59 less than when the
order quantity is 500 bags.
Problem-05: (Exercise problem 16 page 442 krajewski)
Sams Cat Hotel with a P system
a. Referring to Problem 7, the EOQ is 400 bags. When the demand rate
is 15 per day, the average time between orders is (400/15) = 26.67 or
about 27 days. The lead time is 3 weeks 6 days per week = 18 days.
If the review period is set equal to the EOQs average time between
orders (27 days), then the protection interval (P + L) = (27 + 18) =
45 days.
For an 80% cycle-service level
z = 0.84

P L d P L

P L (6.124) 27 18 = 41.08
Safety stock = z P L = 0.84(41.08) = 34.51 or 35 bags
T = Average demand during the protection interval + Safety stock
T = (15*45) + 35 = 710
b. In Problem 7, the Q system required a safety stock of 22 bags to
achieve an 80% cycle-service level. Therefore, the P system requires
a safety stock that is larger by (35 22) = 13 bags.
c. From Problem 7, inventory position, IP = 320.

The amount to reorder is T IP = 710 320 = 390.

Problem-06: (Exercise problem 17 page 442 krajewski)
Continuous review system.
a. Economic order quantity.

EOQ

2 2, 000 40
2 DS

894.4
H
2
or 894 units

Time between orders (TBO) = Q/D = 894/20,000 = 0.0447 years =

2.32 weeks
b. Weekly demand = 20,000/52 = 385 units
For a 95% cycle-service level, z = 1.65
Safety stock:

z d L

= (1.65)(100) 2 = 233.34, or 233 units

Now solve for R, as

R = d L + Safety stock = 385(2) + 233 = 1,003 units
c. cost
i. Annual holding cost of cycle inventory
Q
894
H
2 $894.00
2
2
ii.

Annual ordering cost

D
20,000
S
$40 $894.85
Q
894

d. With the 15-unit withdrawal, IP drops from 1,040 to 1,025 units.

Because this level is above the reorder point (1,025 > 1,003), a new
order is not placed.
Problem-07: (Exercise problem 18page 442 krajewski)
Periodic review system
e. From Problem 17,

EOQ

2 20, 000 40
2 DS

894.4
H
2
or 894 units

Number of orders per year = D Q = 20,000/894 = 22.4 orders per

year.

EOQ
894

0.0447 years 52 weeks year 2.3244

D
20,000
weeks

P is rounded to 2 weeks.
f. For a 95% cycle-service level, z = 1.65. Therefore
Safety stock z P L

P L d P L

P L (100) 2 2 = 200 units

Safety stock = 1.65(200) = 330 units,
T = Average demand during the protection interval + Safety stock
T = (385 * 4) + 330 = 1,870 units
g. In Problem 17, with a Q system the safety stock is 233 units.
Therefore, (330 233) = 97 more units of safety stock are needed.
2. Problem-08: (Exercise problem 22 page 443 krajewski)
Golf specialty wholesaler
a. Periodic Review System
2 DS
2200040
EOQ

178.88
H
5
or 179 1-irons
P

EOQ 179

0.0895 years 4.475

D
2000
or 4.0 weeks

When cycle-service level is 90%, z = 1.28.

Weekly demand is (2,000 units/yr)/(50 wk/yr) = 40 units/wk
L = 4 weeks
Safety stock:
z P L z d P L = (1.28) (3) 4 4 = 10.86, or 11 irons
T = d (P+L) + Safety stock
= 40(4+4) + 11 = 331 irons.

b. Continuous review system

Safety stock = z d L = (1.28)(3) 4 = 1.28(3)(2) = 7.68, or 8 irons
R = d L + Safety stock = 40(4) + 8 =168 iron

PROBLEM: LEAN MANUFACTURING SYSTEM (Chapter 8)

The number of Kanban card is

d = Expected daily demand

w=Average waiting time during processing
P = Average processing time per container
c = Quantity in a std. container
= A policy variable that reflects the efficiency of the workstations
Problem-01: (Example 8.1 page 309 krajjewski)
The westerville Auto parts company produces rocker-arm assemblies for use in the steering and suspension system
of four wheel drive trucks. A typical container of parts spends 0.02 day in processing and 0.08 day in material
handling and waiting during its manufacturing cycle. The daily demand for the part is 2000 units. Management
believes that demand for the rocker-arm assembly is uncertain enough to warrant a safety stock equivalent of 10
percent of its authorized inventory.
(a) If there are 22 parts in each container, how many Kanban cards sets (production order and withdrawal cards)
should be authorized?
(b) Suppose that a proposal to revise the plant layout would cut materials handling and waiting time per container to
0.06 day. Hoe many card sets would be needed
Problem-02: (Solved problem page 316 krajjewski)
A company using a kanban system has an inefficient machine group.. For example, the daily demand for part L105A
is 3000 units. The average waiting time for a container of parts is 0.8 day. The processing time for a container of
L105A is 0.2 day and a container holds 270 units. Currently 20 containers are used for this item.
a)

What is the value of the policy variable, ?

b) What is the total planned inventory?

c)

Suppose that the policy variable, was 0. How many containers would be needed now? What is the effect
of the policy variable in this example?

Problem-03: (Exercise problem 2 page 317 krajjewski)

A fabrication cell at Spradleys Sprockets uses the pull method to supply gears to an assembly lines. George Jitson is
in charge of the assembly line which requires 500 gears per day. Containers typically waits 0.2o day in the
fabrication cell. Each container holds 20 gears and one container requires 1.8 days in machine time. Setup times are
negligible. If the policy variable for unforeseen contingencies is set at 5 percent, how many containers should Jitson
authorize for the gear replenishment system?
Problem-04: (Exercise problem 3 page 317 krajjewski)
You are asked to analyse the kanban system of LeWin, a French manufacturer of gaming devices. One of the
workstations feeding the assembly line produces part M670N. The daily demand for M670N is 1,800 units. The
average processing time per unit is 0.003 day. LeWins record show that the average container spends 1.03 days
waiting at the feeder workstation. The container for M670N can hold 300 units. Twelve containers are authorized for
the part.
a)

Find the policy variable, , that expresses the amount of implied safety stock in this system

b) Use the implied value of from part (a) to determine the required reduction in waiting time if one container
was removed. Assume that all other parameters remain constant.
Problem-05: (Exercise problem 4 page 317 krajjewski)

An assembly line requires two components: gadjits and witjits. Gadjits are produced by center 1 and widjits by
center 2. Each unit of end item called a jit-together, requires 3 gadjits and 2 widjits. The daily production quota on
the assembly line is 800 jit-togethers.
The container of gadjit s holds 80 units. The policy variable for center is set at 0.09. The average waiting time for a
container of gadjits is 0.09 day and 0.06 day is needed to produce a container. The container for widjits holds 50
units and the policy variable for center 2 is 0.08. The average waiting time for container of widjits is 0.14 day, and
the time required to process a container is 0.20 day.
a)

How many containers are needed for gadjits?

b) How many containers are needed for widjits?

Problem-06:
A toy company uses a Kanban system to make a metal fastener of several toys. The waiting
time for a container of the fasteners during production is 0.25 day; average processing time
is 0.15 day per container. Each container holds 200 fasteners. The daily demand of the
fastener is 2000 units. Using an efficiency factor of 5%, calculate the number of Kanban card
sets needed for the fasteners.

Problem: 03
Spradleys Sprockets
d ( w )(1 )
c
k=
500(0.20 1.80)(1 0.05)
20
k=
k = 52.5
Problem: 04
LeWin
a. Solving for implied policy variable,
d ( w )(1 )
c
k=
12

1,800 1.05 0.003 300 1 a

1 a

300

12 300

1,800 1.05 0.003 300

1.0256

1.0256 1 0.0256
b. Reduction in waiting time
1,800 w 0.90 1.0256
1,846 w 1, 661.47
11

300
300

1,846 w 3,300 1, 661.47

w 0.888 days
The reduction in waiting time is:
105
. 0888
.
1543%
.
105
.

Problem: 05
Gadjits and Widjits
a. Containers for gadjits
d ( w )(1 )
c
k=
800(3)( 0.09 0.06)(1 0.09)
80
k=
= 4.905
k=5
b. Containers for widjits
d ( w )(1 )
c
k=
800(2)(0.14 0.20)(1 0.08)
50
k=
= 11.750
k = 12

PROBLEM: SUPPLY CHAIN MANAGEMENT / DESIGN (Chapter 9)

Problem- 01: (Excercise problem 5 page 346 krajewski):
Jack Jones, the materials manager at Precision Enterprises is beginning to look for ways
to reduce inventories. A recent accounting statement shows the following inventory investment
by category: raw materials $3,129,500; work-in-process $6,237,000; and finished goods
$2,686,500. This years cost of goods sold will be about $32.5 million. Assuming 52 business
weeks per year, express total inventory as:
a) Weeks of supply
b) Inventory turns
Problem- 02: (Advanced problem 9 page 347 krajewski):
3. Sterling Inc. operates 52 weeks per year and its cost of goods sold last year was $
6,500,000. The firm carries eight items in inventory: four raw materials, two work-inprocess items and two finished goods. Following table shows last years average
inventory levels for these items along with their unit values.
a. What is the average aggregate inventory value?
b. How many weeks of supply does the firm have?
c. What was the inventory turnover last year?
Category

Part Number Average Inventory (units)

Value per unit

Raw materials

RM-1

20,000

$1

RM-2

5,000

$5

Work-in-process

Finished Goods

RM-3

3,000

$6

RM-4

1,000

$8

WIP-1

6,000

$10

WIP-2

8,000

$12

FG-1

1,000

$65

FG-2

500

$88

Problem- 03: (Solved problem 2 page 345 krajewski):

A firms cost of goods sold last year was $3,410,000 and the firm operates 52 weeks per year. It
carries seven items in inventory: three raw materials, two work in process and two finished
goods. The following table contains last years average inventory level for each item, along with
its value.
a) What is the average aggregate inventory value?
b) How many weeks of supply does the firm maintain?
c) What was the inventory turnover last year?
Category

Part Number Average Inventory (units)

Value per unit

Raw materials

RM-1

15,000

$3

RM-2

2,500

$5

RM-3

3,000

$1

WIP-1

5,000

$14

WIP-2

4,000

$18

FG-1

2,000

$48

FG-2

1,000

$62

Work-in-process

Finished Goods

Problem- 01: (Exercise problem 5 page 346 krajewski):

Precision Enterprises. Average aggregate inventory value
= Raw materials + WIP + Finished goods
=
$3,129,500
$2,686,500

$6,237,000

= $12,053,000

a. Sales per week

= Cost of goods sold/52 weeks per year

= $32,500,000/52
= $625,000

Weeks of supply

= Average aggregate inventory value/

Weekly sales
= $12,053,000/$625,000
= 19.28 wk

b. Inventory turnover

= (Annual sales at cost)/(Average

aggregate inventory value)
= $32,500,000/$12,053,000
= 2.6964 turns/year

Problem- 02: (Advanced problem 9 page 347 krajewski):

Sterling Inc.
a.
Part
Number

Average
Inventory (units) Value ($/unit)

Total Value ($)

RM-1

20,000

1.00

20,000

RM-2

5,000

5.00

25,000

RM-3

3,000

6.00

18,000

RM-4

1,000

8.00

8,000

WIP-1

6,000

10.00

60,000

WIP-2

8,000

12.00

96,000

FG-1

1,000

65.00

65,000

FG-2

500

88.00

44,000

Average aggregate inventory value: $336,000

b. Average weekly sales at cost

= $6,500,000/52
= $125,000
Weeks of supply

= $336,000/$125,000
= 2.688 weeks.

c. Inventory turnover = Annual sales (at cost) /Average aggregate

inventory value
= $6,500,000/$336,000
= 19.34 turns.

PROBLEM: RESOURCE PLANNING (CHAPTER 15)

Problem-01: Exercise Problem 1 page 568 Krajewski
Problem-02: Exercise Problem 2 page 568 Krajewski
Problem-03: Exercise Problem 3 page 568 Krajewski
Problem-04: Exercise Problem 16 page 572 Krajewski
Problem-05: Exercise Problem 17 page 572 Krajewski
Problem-06: Exercise Problem 20 page 574 Krajewski

Problem-01: Exercise Problem 1 page 568 Krajewski

Bill of materials, Fig. 15.24
a. Item I has only one parent (E). However, item E has two parents (B and
C).
b. Item A has 10 unique components (B, C, D, E, F, G, H, I, J, and K).
c. Item A has five purchased items (I, F, G, H, and K). These are the items without
components.
d. Item A has five intermediate items (B, C, D, E, and J). These items have both parents and
components.
e. The longest path is IECA at 11 weeks.
Problem-02: Exercise Problem 2 page 568 Krajewski
2. Item A. The bill of materials for item A is shown following.

B(2)

C(2)

C(2)

E(1)

D(2)

F(2)

Problem-03: Exercise Problem 3 page 568 Krajewski

3. Lead time is determined by the longest path, CBA, at 13 weeks.

Problem-04: Exercise Problem 16 page 572 Krajewski

Completed inventory records
a. FOQ of 50 units
Item:

Drive shaft

Lot Size:

50 units

Lead Time: 3 weeks

Week

Gross requirements

35

25

15

20

40

40

50

50

Scheduled receipts

80

Projected on hand10

55

30

15

45

15

15

15

50

50

50

Planned receipts
Planned
releases

50

order 50

50

50

50

b. L4L
Item:

Drive shaft

Lot Size:

L4L

Lead Time: 3 weeks

Week

Gross requirements

35

25

15

20

40

40

50

50

Scheduled receipts

80

Projected on hand10

55

30

15

40

40

50

50

50

50

Planned receipts
Planned order
releases

40

40

c. POQ with P = 4
Item:

Drive shaft

Lot Size:

POQ, P = 4

Lead Time: 3 weeks

Week

Gross requirements

35

25

15

20

40

40

50

50

Scheduled receipts

80

Projected on hand10

55

30

15

130

90

50

Planned receipts

135

Planned order
releases

135

50
50

Problem-05: Exercise Problem 17page 572 Krajewski

17.

Rear wheel assembly, Fig. 15.33

a. Fixed order quantity = 300

Item:

MQ09

Description:
assembly

Lot Size:

Rear wheel

Week

Gross requirements

205

Scheduled receipts

300

Projected

on

hand 195
100

Lead Time: 1 week

3
130

195

65

Planned receipts
Planned order
releases

FOQ: 300

4
85

280
300

300

280

70

60

95

210 150

55

b. Lot-for-lot
Item:

MQ09

Description:
assembly

Lot Size:

Rear wheel

Week

Gross requirements

205

Scheduled receipts

300

Projected

on

hand 195
100

195

Lead Time: 1 week

3

130

85

65

Planned receipts

20

70

60

95

70

60

95

60

95

20

Planned order
releases

L4L

70

c. Period order quantity, P = 4

Item:

MQ09

Description:
assembly

Lot Size:

Rear wheel

Week

Gross requirements

205

Scheduled receipts

300

Projected

on

hand 195
100

195

Lead Time: 1 week

3

130

85

65

130

Planned receipts
Planned order
releases

POQ, P = 4

130

70

60

95

60

150
150

0
95

95

Problem-06: Exercise Problem 20 page 574 Krajewski

MRP for Fig. 15.36
A

C(2)

D(1)

F(2)

D(1)

E(1)

F(2)

E(2)

E(1)

F(1)

F(1)

F(1)

Data Category

Item
C

FOQ = 220

L4L

FOQ = 300

POQ (P = 2)

Lead time

3 weeks

2 weeks

3 weeks

2 weeks

Scheduled
receipts

280 (week
1)

None

300 (week
3)

None

On-hand
inventory

25

150

600

Lot-size rule

Item:

Lot Size:

Description:
Week

Lead Time: 3 weeks

1

Gross requirements
Scheduled receipts

170

155

155

200

280

Projected on hand 305

25
Planned receipts

FOQ = 220

305

135

135

135

155
220

Planned
releases

Item:

order

220

Lot Size:

Description:

L4L

Lead Time: 2 weeks

Week

Gross requirements

85

180

100

180

100

Scheduled receipts
Projected on hand 0

Planned receipts
Planned
releases

Item:

order

85
85

180

100

Lot Size:

Description:

Lead Time: 3 weeks

Week

Gross requirements

85

Scheduled receipts
Projected on hand
150

order

180

100

360

85

25

25

25

25

300
65

65

Planned receipts
Planned
releases

FOQ = 300

185

300
300

Item:

Lot Size:

Description:

POQ = 2

Lead Time: 2 weeks

Week

170

300

360

200

Projected on hand 430

600

130

200

Gross requirements

Scheduled receipts

Planned receipts
Planned
releases

430

order 430

Two notices are identified: order 85 units of D and 430 units of F. Please
note that action notices were not asked for in the problem.