LOG203: Inventory Management
Question 1
The economic rice stall in FoodClique uses disposable containers for take-aways. The stall operates throughout the year except for 1 week each for CNY and Christmas and operates half a day on Sundays. It employs a reorder level to decide when to place the order for containers to the supplier.
The containers come in a packet of 100 and each packet costs $12.75. The number of takeaways varies over the days and it was found that the average daily demand is 7.5 packets and the standard deviation of daily demand is 4 packets. It was estimated that the annual holding cost is 25% of the unit cost.
A transportation cost of $5.80 is incurred whenever an order is placed, and it takes 4 weeks to receive the items. Inventory records show that there are 220 packets of containers in stock currently and no orders are pending from the supplier.
(a) The new manager of the stall decides to ignore the demand variability and places the order to the supplier based on the average demand. Solve how many packets of disposable containers the manager should order to minimize the overall inventory cost? How does ignoring the demand variability change the order quantity? State, in words, what is the inventory policy the stall is following. The stall used 10 packets of containers today. Is it time to place the order?