Chapter 13

Demand for walnut fudge ice cream at the Sweet Cream Dairy can be approximated by a normal distribution with a mean of 21 gallons per week and a standard deviation of 3.5 gallons per week. The new manager desires a service level of 90%. Lead time is 2 days, and the dairy is open 7 days a week (Hint: work in terms of weeks) a. Find the lead time in days b. If an ROP model is used, what ROP would be consistent with the desired service level?

8.39 gallons

A B C approach

Classifying inventory according to some measure of importance, and allocating control efforts accordingly

Safety Stock

Extra inventory carried to reduce the probability of a stockout due to demand and/or lead time variability

Service Level

Probability that demand will not exceed supply during lead time

Little's Law

The average amount of inventory in a system is equal to the product of the average demand rate and the average time a unit is in the system.

Lead time

Time interval between ordering and receiving the order

Cycle counting

a physical count of items in inventory

Holding (carrying) cost

cost to carry an item in inventory for a length of time, usually a year

Excess cost

difference between purchase cost and salvage value of items left over at the end of a period

Cycle stock

the amount of inventory needed to meet expected demand

Economic order quantity (EOQ)

the optimal order size to minimize the sum of ordering, carrying, and stockout costs The order size that minimizes total annual cost