Exercise#1
The ePaint Store stocks paint in its
warehouse and sells it online on its Internet
Web site. The store stocks several brands of
paint; however, its biggest seller is
Sharman-Wilson Iron coat paint. The
company wants to determine the optimal
order size and total inventory cost for Iron
coat paint given an estimated annual
demand of 10,000 gallons of paint, an
annual carrying cost of $0.75 per gallon, and
an ordering cost of $150 per order. They
would also like to know the number of orders
Exercise#2
Assume that the ePaint Store in Exercise 1 has its own
manufacturing facility in which it produces Iron coat
paint. The ordering cost, S, is the cost of setting up the
production process to make paint. S $150. Recall that H
$0.75 per gallon and D = 10,000 gallons per year. The
manufacturing facility operates the same days the store
is open (i.e., 311 days) and produces 150 gallons of
paint per day. Determine the optimal order size, total
inventory cost, the length of time to receive an order, the
number of orders per year, and the maximum inventory
level.
Exercise#3
For the ePaint Internet Store in Exercise 1, we will
assume that daily demand for Iron coat paint is
normally distributed with an average daily demand
of 30 gallons and a standard deviation of 5 gallons
of paint per day. The lead time for receiving a new
order of paint is 10 days. Determine the reorder
point and safety stock if the store wants a service
level of 95%—that is, the probability of a stockout
is 5%.
Exercise#4
The purchasing manager for the Pacific Steel Company must
determine a policy for ordering coal to operate 12 converters. Each
converter requires exactly 5 tons of coal per day to operate, and the
firm operates 360 days per year. The purchasing manager has
determined that the ordering cost is $80 per order, and the cost of
holding coal is 20% of the average dollar value of inventory held.
The purchasing manager has negotiated a contract to obtain the
coal for $12 per ton for the coming year.
a. Determine the optimal quantity of coal to receive in each order.
b. Determine the total inventory-related costs associated with the
optimal ordering policy (do not include the cost of the coal).
c. If five days’ lead time is required to receive an order of coal,
how much coal should be on hand when an order is placed?
Exercise#5
I-75 Discount Carpets manufactures Cascade carpet,
which it sells in its adjoining showroom store near the
interstate. Estimated annual demand is 20,000 yards
of carpet with an annual carrying cost of $2.75 per
yard. The manufacturing facility operates the same
360 days the store is open and produces 400 yards of
carpet per day. The cost of setting up the
manufacturing process for a production run is $720.
Determine the optimal order size, total inventory cost,
length of time to receive an order, and maximum
inventory level, no. of orders per year.
Exercise#6
The Olde Town Microbrewery makes Town side beer,
which it bottles and sells in its adjoining restaurant and
by the case. It costs $1700 to set up, brew, and bottle a
batch of the beer. The annual cost to store the beer in
inventory is $1.25 per bottle. The annual demand for
the beer is 21,000 bottles and the brewery has the
capacity to produce 30,000 bottles annually.
a. Determine the optimal order quantity, total annual
inventory cost, the number of production runs per year,
and the maximum inventory level.
b. If the microbrewery has only enough storage space to
hold a maximum of 2500 bottles of beer in inventory,
how will that affect total inventory costs?
