Answered: 1. What are the underlying inventory…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Thrown in at the Deep End

Fresh out of college, Monica Larsen's first assignment in her new job as a purchasing agent at Aggie Gifts was to decide whether to continue to purchase a boxed pen set from an existing supplier or consider a
proposal from a new supplier. She also had to evaluate whether current purchasing practices were effective. Aggie Gifts bought pen sets from Pens for You for $21/set. Pens for You shipped products from its factory in
China with delivery leads a time of six weeks, charging a processing fee of $150/order. However, Penultimate, a relative newcomer to the industry, had offered a similar set that is produced in the U.S. but costs $28/set.
Penultimate however promised four-week delivery and charged only $125/order. Aggie Gifts' demand for the pen sets was normally distributed with a mean of 200 sets/week and a standard deviation of 25 sets/week. They were open fifty weeks each year. Monica had established that the average annual cost of carrying inventory amounted to 18 percent of the value of inventory. Aggie Gifts used a reorder point system to manage all of its inventory items. For the pen sets, they had been ordering 800 units whenever the inventory level reached 1,000. Given the demanding nature of its customers, it maintained a 96 percent Cycle Service Level. Being her first assignment, Monica felt the pressure to make recommendations that would help the company and demonstrate that she understood the business.

1. What are the underlying inventory management issues relevant to Monica's assignment?
2. Are current ordering practices effective?
3. How could Monica deliver better inventory performance for the pen sets?

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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