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