IEEM 341

Global Supply Chain Management

Fall 03

Assignment 8
Due date: Nov. 6, 2003 (Thursday)
The full mark of assignment 8 is 15 points.
All the meanings of the following symbols follow the definitions in
the textbook.
Exercise 1
Weekly demand for Motorola cellular phones at a Best Buy store is
normally distributed with a mean of 300 and a standard deviation 200.
Motorola takes two weeks to supply a Best Buy order. Best Buy is
targeting a cycle service level of 95 percent and monitors its inventory
continuously. What level of safety inventory of cellular phones should
Best Buy carry? What should its reorder point be?
Solution:
R L = 2 300 = 600, L = 200 2
CSL = 0.95
ss = Fs1 (CSL) L == 1.644853 200 2 = 465.2348
ROP = RL + ss = 1065.2348

Exercise 2
Reconsider the Best Buy store in problem 1. The store manager has
decided to follow a periodic review policy to manage inventory of
cellular phones. She plans to order every three weeks. Given a desired
cycle service level of 95 percent, how much safety inventory should the
store carry? What should its order up to level be?
Solution:
Note that we have to also consider the average demand in the leadtime
besides the average demand in the order cycle.

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IEEM 341

Global Supply Chain Management

Fall 03

R = 300, R = 200 2 ,
RT + L = (T + L) 300 = (3 + 2) 300 = 1500,

L = 200 T + L = 200 5 ,
CSL = 0.95,
ss = Fs1 (CSL) L = 1.644853 200 5 = 735.6008,
OUL = RL + ss = 2235.6008.

Exercise 3
Assume that the Best Buy store has a continuous review policy of
ordering cellular phones from Motorola in lots of 500. Weekly demand
for Motorola cellular phones at the store is normally distributed with a
mean of 300 and a standard deviation of 200. Motorola takes two weeks
to supply an order. If the store manager is targeting a fill rate of 99
percent, what safety inventory should Best Buy carry? What should its
reorder point be?
Solution:
RL = 2 300 = 600, L = 200 2
fr = 0.99, Q = 500,
ESC = (1 fr ) Q = (1 0.99) 500 = 5
ESC = ss[1 Fs (

ss

)] + L f s (

ss

)=5

ss = 484.76;
ROP = RL + ss = 1084.76

By IEEM 310s knowledge,

we have

n( R) = (1 )Q = 5

L( z ) = n( R ) / L = 0.017678
z = 1.71
ss = z L = 1.71 200 2 = 483.661,
ROP = RL + ss = 1083.661

Exercise 4
Weekly demand for HP printers at a Sams Club store is normally
distributed with a mean of 250 and a standard deviation of 150. The
store manager continuously monitors inventory and currently orders
1,000 printers each time the inventory drops to 600 printers. HP
currently takes two weeks to fill an order. How much safety inventory
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IEEM 341

Global Supply Chain Management

Fall 03

does the store carry? What cycle service level does Sams Club achieve
as a result of this policy? What fill rate does the store achieve?
Solution:

ROP = 600
Q = 1000
RL = 2 250 = 500

L = 150 2
ss = ROP RL = 100
CSL = Fs (

ROP RL

600 500

) = 0.681324
150 2
ss
ss
ESC = ss[1 Fs ( )] + L f s ( ) = 43.86126

) = Fs (

fr = 1

ESC
43.86126
= 1
= 0.956139
Q
1000

Note that many students obtain the wrong value of ESC.

Exercise 5
Return to the Sams Club store in problem 4. Assume that the supply
lead time from HP is normally distributed with a mean of 2 weeks and a
standard deviation of 1.5 weeks. How much safety inventory should
Sams Club carry if it wants to provide a cycle service level of 95
percent? How does the required safety inventory change as the standard
deviation of lead time is reduced from 1.5 weeks to 0 in intervals of 0.5
weeks?
Solution:

R = 250, R = 150,
L = 2, s L = 1.5,
CSL = 0.95,
RL = 2 250 = 500

L = L R2 + R 2 s L2 = 2 150 2 + (250 1.5) 2 = 430.8422

ss = Fs1 (CSL) L = 708.672

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IEEM 341

Global Supply Chain Management

Fall 03

By following the above procedure, we can calculate the required

safety inventory change as the standard deviation of lead time is
reduced from 1.5 weeks to 0 in intervals of 0.5 weeks in the table below.
SL

ss

1
0.5
0

327.8719
246.2214
212.132

539.3013
404.9982
348.9261

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