Practice Problem 1_ Partial Foods _ Week 5 Practice Problems _ CTL

3/15/2016

Practice Problem 1: Partial Foods | Week 5 Practice Problems | CTL.SC1x Courseware | edX

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Supply Chain Fundamentals

Week 5: Inventory Management I - Deterministic Demand Demand > Week 5 Practice Problems > Practice Problem 1: Partial Foods

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PRACTICE PROBLEM 1: PARTIAL FOODS You are responsible for managing the inventory for the trendy upscale specialty food store, Partial Foods. You are trying to set the inventory inventory

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Entrance Survey

policy for one of your most popular cheeses, Mad M ad Cow Cheddar, which comes in 1 pound wheels. It is a stable selling cheese with an average weekly demand of 14 wheels/week.

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Week 1: Overview of  Supply Chain Management & Logistics Week 2: Forecasting I Introduction Week 3: Forecasting II Exponential Smoothing

Your fixed cost of placing an order from the farm that produces Mad Cow Cheddar is $90/order and the cheese itself costs you $12.50 per wheel. Assume that there are 52 weeks in a year and that t hat the annual inventory holding charge is 20%.

Part 1 What should your economic order quantity be, in wheels? Round to the nearest integer value.

 Answer: 229 

Week 4: Forecasting Forecasting III Special Special Cases & Extensions

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Inventory Management I - Deterministic Demand Welcome to Week 5

EXPLANATION

We know that = $90/order and Demand = 14 wheels/week * 52 weeks = 728 wheels/year and = 12.50*0.20 = 2.50 $/wheel/year.  = 228.94 ~ 229 wheels/order.

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3/15/2016

Practice Problem 1: Partial Foods | Week 5 Practice Problems | CTL.SC1x Courseware | edX

Lesson 1: Introduction to Inventory Management Lesson 2: Economic Order Quantity

Part 2 Under this ordering policy, how many weeks on average will the Mad Cow Cheddar be on your shelf? Round to the nearest integer value.

 Answer: 8

Lesson 3: Extensions to the EOQ Model Economic Order Quantity Recitation Week 5 Practice Problems

Supplemental Material for MicroMasters Week 5 Graded Assignment

EXPLANATION

To determine how long on average the cheese will sit on the shelf, we need to know the order cycle length, T*, from this policy. T* = Q*/D = 229/728 = 0.314 year = 16.3 weeks. Since our demand is assumed to be uniform and constant (assumptions of the EOQ), then the average time is simply T*/2 = 8.16 ~ 8 weeks. I do not know what kind of cheese you like, but that seems like a long time!

Homework due Mar 23, 2016 at 19:00 UTC

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Part 3 Your manager tells you that you cannot simply use all of the shelf space you want for free. There is an opportunity cost for shelf space at Partial Foods of $10/sqft/week and each wheel of Mad Cow Cheddar occupies 0.15 sqft of space. What should your economic order quantity, in wheels, be now? Round to the nearest integer value.

 Answer: 40

EXPLANATION

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3/15/2016

Practice Problem 1: Partial Foods | Week 5 Practice Problems | CTL.SC1x Courseware | edX

We now have an additional variable cost, that of space. The original information has not changed: = $90/order and D = 728 wheels/year. However, + $10/sqft/week * 52 weeks * 0.15 sqft/wheel = 2.50 + 78 = 80.50 $/wheel/year.  = 40.34 ~ 40 wheels/order. At this order rate, the average shelf life = (40/728/2) = 0.0274 years = 1.42 weeks. This is a little better!

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Part 4 Your manager still thinks you order too much cheese and has limited your shelf space to a maximum of 3 square feet. There is not back room, so all of your Mad Cow Cheese wheels need to fit within that space. What should your economic order quantity, in wheels, be now? Round to the nearest integer value.

 Answer: 20

EXPLANATION

This means your order quantity cannot exceed 3 square fe et. You can fit 3 / 0.15 = 20 wheels of Mad Cow Cheddar in this space. Therefore, that is your order quantity. This is essentially a constrained problem now. We could figure out how much more this is going to cost by using the EOQ sensitivity ratio.

= 1.25 or 25% more expensive!

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Practice Problem 1: Partial Foods | Week 5 Practice Problems | CTL.SC1x Courseware | edX

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