Visaney I.

Angob BSA-4

Questions:

1. Describe the importance of inventory management as it relates to the Farmers

Restaurant.

Inventories are vital part of business. Not only they are necessary for operations, but they
also contribute to customer satisfaction. The inventory management can help restaurant manager
to simplify ordering, scheduling and any process regarding the inventory at the level which is
stable for the business. In case of Farmers Restaurant the inventory management is important
especially Kristin, the manager or the business itself has many competitors therefore with proper
inventory management they will not lost any demands and they will have a stable inventory that
could keep up with the demands of customers until new orders would arrive. Kristin may use
historical data regarding orders needed with forecasting of sales to lessen the cost of orders.

2. What ordering system would be best for this situation?

For me, because Kristin makes her own ordering system and she has lot of inventory in
the storage but they only have lesser demand that is why more inventory will be wasted if this
will continue and also more cost in foods. Therefore, she must use Economic order quantity
because it will minimize the sum of the annual costs of holding inventory and ordering inventory
that will result to tight control of restaurants inventory and it will lessen up food cost and could
balance the demand of the customer. Also, when multiple items come from the same supplier,
orders can be discounted and also shipment fee will be lessen due to many orders with the same
supplier.

3.) Given the following information, provide an example of how much Farmers sausage
Gravy mix should be ordered. You are doing the order on Thursday. Also, Kristin would
like a service level of 95%, and you have found that there is a standard deviation of 3.5
units per week, and a moving average weekly demand of 35 servings. The gravy mix comes
in packs of two servings. There are currently three packs in inventory.

Where:
D`= average daily or weekly demand = 5 servings/day
OI= order interval = 7 days
LT= lead time =2 days
A= amount on hand = 6 servings
2 servings *3 packs= 6 servings
Q=amount to order =?
Z= value of service level =1.645
Z= (.9545=1.64;.9545=1.68)
Standard deviation = 0.5
=3.5/week /7 = 0.5 per day
Solution:
Amount to order = D`(OI+LT)= zStd.dev.(OI+LT)- A
= 5(7+2)+1.645(.5)(7+2)-6
= (45+ 2.4675)-6
=47.4675 -6
= 41.4675 OR 42 orders
=422 =21 packs
Therefore, based on the calculation and information above and the fixed-interval model, Kristin
can conclude that the quantity to order that is needed to meet Farmers inventory requirements
would be 42 servings So, Kristin would need to order 21 packs of gravy on the current order to
meet expected demand for the coming week.

4.) Given the above information and an on-hand inventory of 12, determine the risk of
stock out at the end of initial lead time and at the end of the second lead time. The lead time
is 2 days and orders are placed once a week.

*Initial Lead-time
A=D`*lt +z std.dev.LT
12=5*2+2(0.5)(2)
12= 5*2 + z(0.5)(1.414)
12= 10+ .707z
22= .707z
Z= 2.83
Percentile = 99.5%

Using the table and interpolation:

(.9977-.9974)*(2.83-2.8002.84-2.80)= 0.000225
2.80=.9974
2.83=.9974+0.000225=.9976 or 99.761% service level
Therefore the stock out risk is: 100%-service level
=100% - 99.76% = 0.24%stockout risk

*End of second lead-time

Q= D`(OI+LT)= zStd.dev.(OI+LT)- A
42= 5(7+2) + z (.5) (7+2)-12
42= 45+2(0.5)(3)-12
2(.5)(3)=42-45+12
2=91.5
Z=6
Percentile= 100%
Therefore the stock out risk is: 100%-100% =0%stockout risk

Based on the computations above, there is a very small chance that they will encounter stock out
before the next order arrives. With service level of 99.5 and 100% ,they will not have shortage of
stocks, therefore Kristin may consider this in deciding wherein switching to a local supplier.
5.) The supplier Kristin uses is located in Ohio. Why might Kristin consider dealing with a
nearby supplier instead of the one in Ohio? What reasons might there be for not switching
suppliers?

The location of Farmers restaurant is in Wyoming area of Michigan and the suppliers is
in Ohio. The distance between the restaurant and the supplier is more than 400km.Kristin must
consider the cost of the transportation, the shipment size scheduling and the performance
regarding, which supplier to order, how much to order. If the supplier is nearby the chance of
having lesser cost could be met. The reason that Kristin would not witch suppliers is that when
you have the same suppliers, you can avail discounts of your orders especially when you order a
lot also the shipment will lessen because it came from the same supplier. And also, even if the
supplier is too far, your lead time is fine and there is a small percentage of having stock out until
the new orders arrives.