Diego Galdeano Mz505 Inventory Systems Fall 2023 HWK 5

MZ505 INVENTORY SYSTEMS
FALL 2023
ASSIGNMENT #5
Inventory Systems
Diego Galdeano
[email protected]
Problem 1 (Max Points 70)
Given Data:
𝝁 = 100 𝝈 = 65 𝑳 = 2 𝑤𝑒𝑒𝑘𝑠 𝑻 = 1 𝑤𝑒𝑒𝑘 𝑪𝑺𝑳 = 90% 52 weeks per year

Expected Service Level = 97% Expected Warehouse = 1 S’= 5500 H’= 1.25 per unit
a. An analysis of customer demand reveals that the demands in the five regions
are very similar, i.e., it is common that if weekly demand in one region is
above average, so is the weekly demand in the other regions. How does this
observation affect the attractiveness of the new system? Please explain.
Risk pooling is a strategy used to reduce demand uncertainty by pooling risks from different sources. When applying risk
sharing, if one customer's demand exceeds the average, it does not necessarily mean that everyone else's will do so as
well. However, the risk increases if it is incorrectly assumed that this will be the case for all clientele and inventory levels
will be adjusted accordingly.
In this case, since demand and mean are related, if one customer's exceptional demand is taken as the norm for
everyone, it could lead to decisions that result in stockouts or excess inventory. Acting based on an anomaly, without
considering the variability and stochastic nature of demand, is risky.
b. Suppose you are to compare the two systems for Product A only, what is your
recommendation.
Decentralized
Weeks
Warehouses 1 2 3 4 5 6 7 8 9 10 11 12 stnd.des week Stnd.des anual Mean Week Mean Anual
A 33 45 37 38 55 30 18 58 47 37 23 55 12.76 92 39.67 2062.67
B 26 35 41 40 46 48 55 18 62 44 30 45 12.24 88 40.83 2123.33
C 44 34 22 55 48 72 62 28 27 95 35 45 21.17 153 47.25 2457.00
D 27 42 35 40 51 64 70 65 55 43 38 47 13.22 95 48.08 2500.33
L 32 43 54 40 46 74 40 35 45 38 48 56 11.34 82 45.92 2387.67
𝑰𝒏𝒃𝒐𝒖𝒏𝒅 𝒄𝒐𝒔𝒕 = 𝐼𝑏 𝐶𝑜𝑠𝑡 ∗ 𝜇𝑊𝑒𝑒𝑘 ∗ 52 𝑤𝑒𝑒𝑘𝑠
𝑶𝒖𝒕𝒃𝒐𝒏𝒅 𝑪𝒐𝒔𝒕 = 𝑂𝑏 𝐶𝑜𝑠𝑡 ∗ 𝜇𝑊𝑒𝑒𝑘 ∗ 52 𝑤𝑒𝑒𝑘𝑠
Warehouses EOQ SS S' H' Inbound Cost Outbound Cost TAC

A 590.82 34.10 $19,201.61 $21,418.28 $24,752.00 $26,814.67 $92,186.55
B 599.44 32.71 $19,481.94 $21,608.26 $24,418.33 $27,603.33 $93,111.86
C 644.83 56.59 $20,956.83 $24,634.97 $27,027.00 $31,941.00 $104,559.80
$480,486.08
D 650.49 35.34 $21,140.83 $23,437.90 $22,503.00 $32,504.33 $99,586.06
L 635.66 30.31 $20,659.03 $22,629.45 $16,713.67 $31,039.67 $91,041.81
Centralized
𝝁𝑨𝒏𝒖𝒂𝒍 = ((𝜇𝑊𝑒𝑒𝑘)𝐴 + (𝜇𝑊𝑒𝑒𝑘)𝐵 + (𝜇𝑊𝑒𝑒𝑘)𝐶 + (𝜇𝑊𝑒𝑒𝑘)𝐷 + (𝜇𝑊𝑒𝑒𝑘)𝐿) ∗ 52 = 11.531
11.531 ∗ 2 ∗ 5500 Outbond Costs

𝑬𝑶𝑸 (𝑸 ∗) = √ = 1396.93
1,25 ∗ 52
𝝈centralized =
𝑪𝒐𝒓𝒓𝒆𝒍𝒂𝒕𝒊𝒐𝒏 𝑴𝒂𝒕𝒓𝒊𝒙 ( )
𝑺𝑺 = 𝝈∗ √𝑳 ∗ 𝒁(𝟎. 𝟗𝟕) = 𝟑𝟓. 𝟏𝟔 ∗ √𝟐 ∗ 𝟏. 𝟖𝟗 = 𝟗𝟑. 𝟗𝟖
Warehouses EOQ SS S' H' Inbound Cost Outbound Cost TAC

A 1396.93 93.98 $45,399.91 $51,508.79 $138,372.00 $168,352.60 $403,633.30
B 1396.93 93.98 $45,399.91 $51,508.79 $132,606.50 $154,515.40 $384,030.60
C 1396.93 93.98 $45,399.91 $51,508.79 $126,841.00 $152,209.20 $375,958.90
D 1396.93 93.98 $45,399.91 $51,508.79 $103,779.00 $152,209.20 $352,896.90
L 1396.93 93.98 $45,399.91 $51,508.79 $80,717.00 $163,740.20 $341,365.90
Comparation
TAC We can say that to achieve a 97% of CSL, with

Centralized Decentralized lower costs, it´s possible. The selected WH to
$341,365.90 $480,486.08 be the central one it would be LA. With this
option the cost is reduced by 28%. To sum up,
Diference we can reach a higher service level with lower
29% expenses.
Problem 2: (Max Points 30)
Given Data:
𝝁 = 100 𝝈 = 65 𝑳 = 2 𝑤𝑒𝑒𝑘𝑠 𝑻 = 1 𝑤𝑒𝑒𝑘 𝑪𝑺𝑳 = 97%
a. Expected on-hand inventory of desks at the store (black and cherry together)
𝑻𝒐𝒕𝒂𝒍 𝒑𝒆𝒓𝒊𝒐𝒅 = 𝐿 + 𝑇 = 2 + 1 = 3 𝝁𝑳 + 𝑻 = 1003 = 300 𝝈𝑳 + 𝑻 = 65 √3 = 112.58
𝒛(𝑪𝑺𝑳) 0.97 → Z → = 1.89
𝑶𝒓𝒅𝒆𝒓 𝑼𝒑 𝑻𝒐 𝒍𝒆𝒗𝒆𝒍 (𝑺) = 𝜇𝐿 + 𝑇 + (𝜎𝐿 + 𝑇 ∗ 𝑧) = 300 + (1.881 ∗ 112.58) = 511.763
𝑬[𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚] = 511.763 − 300 = 211.763 𝑢𝑛𝑖𝑡𝑠 = 212 𝑢𝑛𝑖𝑡𝑠
𝐵𝑒𝑐𝑎𝑢𝑠𝑒 𝑏𝑜𝑡ℎ 𝑐𝑜𝑙𝑜𝑢𝑟𝑠 ℎ𝑎𝑣𝑒 𝑡ℎ𝑒 𝑠𝑎𝑚𝑒 𝑚𝑒𝑎𝑛 𝑎𝑛𝑑 𝑠𝑎𝑚𝑒 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛,
𝑡ℎ𝑒 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑂𝑛 − ℎ𝑎𝑛𝑑 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑖𝑠: 212 ∗ 2 = 𝟒𝟐𝟒
b. What is the expected on-hand inventory of black tops?

Because the bases have common data, the expected inventory of black tops will not be affected.
𝑬[𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚] = 511.763 − 300 = 211.763 𝑢𝑛𝑖𝑡𝑠 = 𝟐𝟏𝟐 𝑢𝑛𝑖𝑡𝑠 𝑓𝑜𝑟 𝐵𝑙𝑎𝑐𝑘 𝑇𝑜𝑝𝑠
c. How much less inventory of grey bases does you have on average at the store
with the new in-store assembly scheme relative to the original system in which
desks are delivered fully assembled?
The answer is zero for how much less inventory we need for part C. We must have one gray base for each top. This is
because we want to make sure we almost always have them in stock, about 97% of the time. If we have fewer gray bases
than tops, we might run out and not meet our 97% goal. So, having the same number of gray bases as tops means we
don't need extra inventory for part C.

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MZ505 INVENTORY SYSTEMS

𝝁 = 100 𝝈 = 65 𝑳 = 2 𝑤𝑒𝑒𝑘𝑠 𝑻 = 1 𝑤𝑒𝑒𝑘 𝑪𝑺𝑳 = 90% 52 weeks per year

𝑰𝒏𝒃𝒐𝒖𝒏𝒅 𝒄𝒐𝒔𝒕 = 𝐼𝑏 𝐶𝑜𝑠𝑡 ∗ 𝜇𝑊𝑒𝑒𝑘 ∗ 52 𝑤𝑒𝑒𝑘𝑠

𝑶𝒖𝒕𝒃𝒐𝒏𝒅 𝑪𝒐𝒔𝒕 = 𝑂𝑏 𝐶𝑜𝑠𝑡 ∗ 𝜇𝑊𝑒𝑒𝑘 ∗ 52 𝑤𝑒𝑒𝑘𝑠

Warehouses EOQ SS S' H' Inbound Cost Outbound Cost TAC

11.531 ∗ 2 ∗ 5500 Outbond Costs

𝑺𝑺 = 𝝈∗ √𝑳 ∗ 𝒁(𝟎. 𝟗𝟕) = 𝟑𝟓. 𝟏𝟔 ∗ √𝟐 ∗ 𝟏. 𝟖𝟗 = 𝟗𝟑. 𝟗𝟖

Warehouses EOQ SS S' H' Inbound Cost Outbound Cost TAC

TAC We can say that to achieve a 97% of CSL, with

𝝁 = 100 𝝈 = 65 𝑳 = 2 𝑤𝑒𝑒𝑘𝑠 𝑻 = 1 𝑤𝑒𝑒𝑘 𝑪𝑺𝑳 = 97%

b. What is the expected on-hand inventory of black tops?

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