# Inventory management – operations and supply chain decisions and | Process Management | University of Illinois at Urbana-Champaign

QUESTION 1:

**The information in this paragraph applies to this question and the 5 questions that follow (so, questions 1-6).**

**The annual demand for the Savonera bar soap, one of the luxury brands manufactured by Mellow Cosmetics Company, is 50,000 soap bars.**

**The cost of a single soap bar is $2.50.**

**The rate of holding cost per unit per year, which includes opportunity cost of investment and deterioration of a soap bar when in storage, is 10% of the cost of the soap bar.**

**The cost of setting up machinery for making a batch of the Savonera soap bar, which includes changing the materials and tools, and wastage of initial test quantities, is $40 per setup.**

The company currently uses an arbitrary batch size of 6,000 for making Savonera bars of soap. Based on this batch size and the information provided earlier, please calculate and report the annual inventory holding (carrying) cost for Mellow Cosmetics Company.

Remember to show your work including any formula you use.

Round your final answer to two spaces (if needed) after the decimal.

Bold your final answer.

QUESTION 2:

Based on the arbitrary batch size of 6,000 bars of Savonera soap and the information provided earlier, please calculate and report the total annual cost of setups for Mellow Cosmetics Company.

Remember to show your work including any formula you use.

Round your final answer to two spaces (if needed) after the decimal.

Bold your final answer.

QUESTION 3:

The management of Mellow Cosmetics Company has requested your help for systematically figuring out the batch size for Savonera soap to replace their arbitrary batch size. Based on the demand and costs information provided earlier, please help by calculating and reporting the Economic Order Quantity (EOQ) for the batch size that you would recommend for manufacturing Savonera soap bars.

Remember to show your work including any formula you use.

Round your final answer to two spaces (if needed) after the decimal.

Bold your final answer.

QUESTION 4

Using the EOQ batch size that you calculated for Savonera bars of soap, please calculate and report the annual inventory holding (carrying) cost for Mellow Cosmetics Company.

Remember to show your work including any formula you use.

Round your final answer to two spaces (if needed) after the decimal.

Bold your final answer.

QUESTION 5

Using the EOQ batch size that you calculated for Savonera bars of soap, please calculate and report the total annual cost of setups for Mellow Cosmetics Company.

Remember to show your work including any formula you use.

Round your final answer to two spaces (if needed) after the decimal.

Bold your final answer.

QUESTION 6

Compare the total cost of inventory management (holding + setup cost) for the two quantities (6,000 and the EOQ you calculated), i.e., calculate and report the difference in the total costs of inventory management using the two different quantities.

Bold your final answer for the difference amount.

Based on your knowledge of the idea behind EOQ, please explain the reason for the difference (in words in two or three sentences – not in terms of reconciling the differences mathematically).

QUESTION 7

**The information in this paragraph applies to this question and the three questions that follow (so, questions 7-10).**

**Workshop manager Shinji Suzuki has noted that the daily demand for the StoryKore bibimbap pots (dolsots) produced and sold by his business, Pandamonium International Cookware, located in southwest Champaign, is 24 pots.**

**The workshop operates 365 days a year.**

**The lead time for producing the pots is 4 days.**

**Shinji Suzuki would like your help in figuring out a few selected questions about managing inventory.**

Based on the information provided, please calculate and report the reorder point under the assumption of no uncertainty. and therefore, no need for any safety stock.

Remember to show your work including any formula you use.

Round your final answer to the nearest whole number.

Bold your final answer.

QUESTION 8

Closer scrutiny of past data reveals that the standard deviation for daily sales is 9 pots. Adding this new information to that provided earlier, please calculate and report the number of pots you recommend as safety stock for a 99% service level (the z score for which, using the function =NORM.S.INV(0.99) in Microsoft Excel, is 2.33).

Remember to show your work including any formula you use.

Round your final answer to the nearest whole number.

Bold your final answer.

QUESTION 9

The StoryKore bibimbap pots are currently produced at Shinji’s workshop in batches of 120 at a time. Adding this new information to that provided earlier, and ignoring the uncertainty in demand and therefore the standard deviation of demand, please calculate and report every how many days on average does another batch of pots need to be produced.

Remember to show your work including any formula you use.

Round your final answer to the nearest whole number.

Bold your final answer.

QUESTION 10.

Shinji decides to increase the batch size from 120 noted in the previous question to 146 pots. Based on this new batch size, and ignoring the uncertainty in demand and therefore the standard deviation of demand, please calculate and report how many batches of size 146 need to be produced on average every year to fulfill demand.

Remember to show your work including any formula you use.

Round your final answer to the nearest whole number.

Bold your final answer.