Steel Frame Furniture (A)

For a northern region showroom

Demand Distribution: Normal
Mean Demand md 24 units per week
Std.Dev. Demand sd 4 units per week

Leadtime Distribution: Normal

Mean Leadtime mLT 1 week
Std.Dev. Leadtime sLT 0.3 week

Distribution of Demand during Leadtime: Normal Formula

Mean mdLT 24 units per cycle =md*mLT
Std.Dev. sdLT 8.236504 units per cycle =sqrt(mLT*(sd^2)+(md^2)*(sLT^2))

Continous Review Policy Parameters for Showroom

Relevant Costs
Ordering cost Co 675 Rupees per order
Inv. Holding cost Ch 1800 Rupees per unit per year
1 Year is equal to 50 weeks

How much to order? EOQ Q* 30 units =sqrt(2*annual demand*Co/Ch)

When to re-order i.e.

Reorder point ROP = Mean demand during leadtime +Safety stock for 99.9% fill rate

Fillrate (Given) Fr 0.999

Expected Shortage(ESC) per year E(N) 1.2 units per year =(1-Fr)*Annual Demand
Expected shortages(ESC) per cycle E(n) 0.0300 units per cycle =E(N)/No. of cycles or orders
Number of orders n 40 orders or cycles per year

Converting ESC using standard normal distribution i.e. z

ESC for std. normal dist E(z) 0.003642 units per cycle =E(n)/sdLT

From the table find out z corresponding to E(z)

Desired z value z 2.302018
Goal 0.00364

Safety Stock for 99.9 % Fillrate SS 18.96058 units

Reorder point ROP 42.96058 units

What is the cycle service level? CSL 0.989333 98.75% CSL=Prob(DDLT<=ROP)

What is stock out risk? a 0.010667 1.205% =Prob(DDLT>ROP)

Part-C

Shortage cost Minimum Cs 2000 Rupees per unit

Inventory holding cost Ch 1800 Rupees per unit per year
Inventory holding cost Ch 45 Rupees per unit per year

1 unit of stock out * Prob(DDLT>ROP)*Cs > ch per cycle

Prob(DDLT>ROP) a >= 0.0225

Ideal Cycle service level CSL <= 0.9775
z value z 2.004654
Safety stock SS 16.51134
E(z) E(z) 0.008385
Expected shortages ESC E(n) 0.069066 units
Expected shortages ESC E(N) 2.762654 units per year
Hence Fill rate Fr 0.997698
Fr 0.997698

COMPARISON:
Existing
Policy Cs=2000 Cs=5000

CSL 0.9893 0.9775 0.9910

Fillrate 0.9990 0.9977 0.9992
Safety stock 18.96 16.511345 19.48
E(n) i.e. Shortage units/cycle 0.0300 0.0691 0.0248
z value 2.3020 2.0047 2.3656

Recommendation: Since existing policy falls between the policies to be followed for two shortages costs,
We should not change the existing policy.
^2)*(sLT^2))

.9% fill rate

ed for two shortages costs,
z SL E(z)
-2.4 0.0082 2.40272
-2.39 0.00842 2.392804
-2.38 0.00866 2.382889
-2.37 0.00889 2.372977
-2.36 0.00914 2.363067
-2.35 0.00939 2.353159
-2.34 0.00964 2.343255
-2.33 0.0099 2.333352
-2.32 0.01017 2.323453
-2.31 0.01044 2.313556
-2.3 0.01072 2.303662
-2.29 0.01101 2.29377
-2.28 0.0113 2.283882
-2.27 0.0116 2.273996
-2.26 0.01191 2.264114
-2.25 0.01222 2.254235
-2.24 0.01255 2.244358
-2.23 0.01287 2.234486
-2.22 0.01321 2.224616
-2.21 0.01355 2.21475
-2.2 0.0139 2.204887
-2.19 0.01426 2.195028
-2.18 0.01463 2.185172
-2.17 0.015 2.17532
-2.16 0.01539 2.165472
-2.15 0.01578 2.155628
-2.14 0.01618 2.145788
-2.13 0.01659 2.135952
-2.12 0.017 2.12612
-2.11 0.01743 2.116292
-2.1 0.01786 2.106468
-2.09 0.01831 2.096649
-2.08 0.01876 2.086835
-2.07 0.01923 2.077024
-2.06 0.0197 2.067219
-2.05 0.02018 2.057418
-2.04 0.02068 2.047623
-2.03 0.02118 2.037832
-2.02 0.02169 2.028046
-2.01 0.02222 2.018266
-2 0.02275 2.008491
-1.99 0.0233 1.998721
-1.98 0.02385 1.988957
-1.97 0.02442 1.979198
-1.96 0.025 1.969445
-1.95 0.02559 1.959698
-1.94 0.02619 1.949957
-1.93 0.0268 1.940222
-1.92 0.02743 1.930493
-1.91 0.02807 1.92077
-1.9 0.02872 1.911054
-1.89 0.02938 1.901345
-1.88 0.03005 1.891642
-1.87 0.03074 1.881946
-1.86 0.03144 1.872257
-1.85 0.03216 1.862575
-1.84 0.03288 1.8529
-1.83 0.03362 1.843233
-1.82 0.03438 1.833573
-1.81 0.03515 1.82392
-1.8 0.03593 1.814276
-1.79 0.03673 1.804639
-1.78 0.03754 1.79501
-1.77 0.03836 1.78539
-1.76 0.0392 1.775777
-1.75 0.04006 1.766174
-1.74 0.04093 1.756579
-1.73 0.04182 1.746992
-1.72 0.04272 1.737415
-1.71 0.04363 1.727847
-1.7 0.04457 1.718288
-1.69 0.04551 1.708738
-1.68 0.04648 1.699198
-1.67 0.04746 1.689668
-1.66 0.04846 1.680147
-1.65 0.04947 1.670637
-1.64 0.0505 1.661137
-1.63 0.05155 1.651647
-1.62 0.05262 1.642168
-1.61 0.0537 1.632699
-1.6 0.0548 1.623242
-1.59 0.05592 1.613796
-1.58 0.05705 1.60436
-1.57 0.05821 1.594937
-1.56 0.05938 1.585525
-1.55 0.06057 1.576124
-1.54 0.06178 1.566736
-1.53 0.06301 1.55736
-1.52 0.06426 1.547996
-1.51 0.06552 1.538645
-1.5 0.06681 1.529307
-1.49 0.06811 1.519981
-1.48 0.06944 1.510669
-1.47 0.07078 1.50137
-1.46 0.07215 1.492085
-1.45 0.07353 1.482813
-1.44 0.07493 1.473555
-1.43 0.07636 1.464312
-1.42 0.0778 1.455083
-1.41 0.07927 1.445868
-1.4 0.08076 1.436668
-1.39 0.08226 1.427483
-1.38 0.08379 1.418314
-1.37 0.08534 1.409159
-1.36 0.08691 1.40002
-1.35 0.08851 1.390898
-1.34 0.09012 1.381791
-1.33 0.09176 1.3727
-1.32 0.09342 1.363626
-1.31 0.0951 1.354568
-1.3 0.0968 1.345528
-1.29 0.09853 1.336505
-1.28 0.10027 1.327499
-1.27 0.10204 1.31851
-1.26 0.10383 1.309539
-1.25 0.10565 1.300587
-1.24 0.10749 1.291653
-1.23 0.10935 1.282737
-1.22 0.11123 1.27384
-1.21 0.11314 1.264961
-1.2 0.11507 1.256102
-1.19 0.11702 1.247263
-1.18 0.119 1.238443
-1.17 0.121 1.229643
-1.16 0.12302 1.220863
-1.15 0.12507 1.212104
-1.14 0.12714 1.203365
-1.13 0.12924 1.194646
-1.12 0.13136 1.185949
-1.11 0.1335 1.177274
-1.1 0.13567 1.16862
-1.09 0.13786 1.159987
-1.08 0.14007 1.151377
-1.07 0.14231 1.142789
-1.06 0.14457 1.134223
-1.05 0.14686 1.12568
-1.04 0.14917 1.11716
-1.03 0.15151 1.108664
-1.02 0.15386 1.10019
-1.01 0.15625 1.091741
-1 0.15866 1.083315
-0.99 0.16109 1.074914
-0.98 0.16354 1.066537
-0.97 0.16602 1.058185
-0.96 0.16853 1.049858
-0.95 0.17106 1.041556
-0.94 0.17361 1.033279
-0.93 0.17619 1.025028
-0.92 0.17879 1.016803
-0.91 0.18141 1.008604
-0.9 0.18406 1.000431
-0.89 0.18673 0.992285
-0.88 0.18943 0.984166
-0.87 0.19215 0.976074
-0.86 0.19489 0.968009
-0.85 0.19766 0.959972
-0.84 0.20045 0.951962
-0.83 0.20327 0.943981
-0.82 0.20611 0.936028
-0.81 0.20897 0.928103
-0.8 0.21186 0.920207
-0.79 0.21476 0.91234
-0.78 0.2177 0.904503
-0.77 0.22065 0.896694
-0.76 0.22363 0.888916
-0.75 0.22663 0.881167
-0.74 0.22965 0.873448
-0.73 0.2327 0.86576
-0.72 0.23576 0.858102
-0.71 0.23885 0.850475
-0.7 0.24196 0.842879
-0.69 0.2451 0.835315
-0.68 0.24825 0.827781
-0.67 0.25143 0.82028
-0.66 0.25463 0.81281
-0.65 0.25785 0.805372
-0.64 0.26109 0.797967
-0.63 0.26435 0.790594
-0.62 0.26763 0.783254
-0.61 0.27093 0.775947
-0.6 0.27425 0.768673
-0.59 0.2776 0.761432
-0.58 0.28096 0.754225
-0.57 0.28434 0.747051
-0.56 0.28774 0.739912
-0.55 0.29116 0.732806
-0.54 0.2946 0.725735
-0.53 0.29806 0.718698
-0.52 0.30153 0.711696
-0.51 0.30503 0.704729
-0.5 0.30854 0.697797
-0.49 0.31207 0.6909
-0.48 0.31561 0.684038
-0.47 0.31918 0.677212
-0.46 0.32276 0.670422
-0.45 0.32636 0.663667
-0.44 0.32997 0.656949
-0.43 0.3336 0.650267
-0.42 0.33724 0.643621
-0.41 0.3409 0.637011
-0.4 0.34458 0.630439
-0.39 0.34827 0.623903
-0.38 0.35197 0.617404
-0.37 0.35569 0.610943
-0.36 0.35942 0.604518
-0.35 0.36317 0.598131
-0.34 0.36693 0.591782
-0.33 0.3707 0.58547
-0.32 0.37448 0.579196
-0.31 0.37828 0.572959
-0.3 0.38209 0.566761
-0.29 0.38591 0.560601
-0.28 0.38974 0.554479
-0.27 0.39358 0.548396
-0.26 0.39743 0.542351
-0.25 0.40129 0.536345
-0.24 0.40517 0.530377
-0.23 0.40905 0.524448
-0.22 0.41294 0.518558
-0.21 0.41683 0.512707
-0.2 0.42074 0.506895
-0.19 0.42465 0.501122
-0.18 0.42858 0.495388
-0.17 0.43251 0.489693
 -0.16 0.43644 0.484038
-0.15 0.44038 0.478422
-0.14 0.44433 0.472846
-0.13 0.44828 0.467309
-0.12 0.45224 0.461811
-0.11 0.4562 0.456353
-0.1 0.46017 0.450935
-0.09 0.46414 0.445557
-0.08 0.46812 0.440218
-0.07 0.4721 0.434919
-0.06 0.47608 0.42966
-0.05 0.48006 0.424441
-0.04 0.48405 0.419261
-0.03 0.48803 0.414122
-0.02 0.49202 0.409022
-0.01 0.49601 0.403962
-4.97E-14 0.5 0.398942
0.01 0.50399 0.393962
0.02 0.50798 0.389022
0.03 0.51197 0.384122
0.04 0.51595 0.379261
0.05 0.51994 0.374441
0.06 0.52392 0.36966
0.07 0.5279 0.364919
0.08 0.53188 0.360218
0.09 0.53586 0.355557
0.1 0.53983 0.350935
0.11 0.5438 0.346353
0.12 0.54776 0.341811
0.13 0.55172 0.337309
0.14 0.55567 0.332846
0.15 0.55962 0.328422
0.16 0.56356 0.324038
0.17 0.56749 0.319693
0.18 0.57142 0.315388
0.19 0.57535 0.311122
0.2 0.57926 0.306895
0.21 0.58317 0.302707
0.22 0.58706 0.298558
0.23 0.59095 0.294448
0.24 0.59483 0.290377
0.25 0.59871 0.286345
0.26 0.60257 0.282351
0.27 0.60642 0.278396
0.28 0.61026 0.274479
0.29 0.61409 0.270601
0.3 0.61791 0.266761
0.31 0.62172 0.262959
0.32 0.62552 0.259196
0.33 0.6293 0.25547
0.34 0.63307 0.251782
0.35 0.63683 0.248131
0.36 0.64058 0.244518
0.37 0.64431 0.240943
0.38 0.64803 0.237404
0.39 0.65173 0.233903
0.4 0.65542 0.230439
0.41 0.6591 0.227011
0.42 0.66276 0.223621
0.43 0.6664 0.220267
0.44 0.67003 0.216949
0.45 0.67364 0.213667
0.46 0.67724 0.210422
0.47 0.68082 0.207212
0.48 0.68439 0.204038
0.49 0.68793 0.2009
0.5 0.69146 0.197797
0.51 0.69497 0.194729
0.52 0.69847 0.191696
0.53 0.70194 0.188698
0.54 0.7054 0.185735
0.55 0.70884 0.182806
0.56 0.71226 0.179912
0.57 0.71566 0.177051
0.58 0.71904 0.174225
0.59 0.7224 0.171432
0.6 0.72575 0.168673
0.61 0.72907 0.165947
0.62 0.73237 0.163254
0.63 0.73565 0.160594
0.64 0.73891 0.157967
0.65 0.74215 0.155372
0.66 0.74537 0.15281
0.67 0.74857 0.15028
0.68 0.75175 0.147781
0.69 0.7549 0.145315
0.7 0.75804 0.142879
0.71 0.76115 0.140475
0.72 0.76424 0.138102
0.73 0.7673 0.13576
0.74 0.77035 0.133448
0.75 0.77337 0.131167
0.76 0.77637 0.128916
0.77 0.77935 0.126694
0.78 0.7823 0.124503
0.79 0.78524 0.12234
0.8 0.78814 0.120207
0.81 0.79103 0.118103
0.82 0.79389 0.116028
0.83 0.79673 0.113981
0.84 0.79955 0.111962
0.85 0.80234 0.109972
0.86 0.80511 0.108009
0.87 0.80785 0.106074
0.88 0.81057 0.104166
0.89 0.81327 0.102285
0.9 0.81594 0.100431
0.91 0.81859 0.098604
0.92 0.82121 0.096803
0.93 0.82381 0.095028
0.94 0.82639 0.093279
0.95 0.82894 0.091556
0.96 0.83147 0.089858
0.97 0.83398 0.088185
0.98 0.83646 0.086537
0.99 0.83891 0.084914
1 0.84134 0.083315
1.01 0.84375 0.081741
1.02 0.84614 0.08019
1.03 0.84849 0.078664
1.04 0.85083 0.07716
1.05 0.85314 0.07568
1.06 0.85543 0.074223
1.07 0.85769 0.072789
1.08 0.85993 0.071377
1.09 0.86214 0.069987
1.1 0.86433 0.06862
1.11 0.8665 0.067274
1.12 0.86864 0.065949
1.13 0.87076 0.064646
1.14 0.87286 0.063365
1.15 0.87493 0.062104
1.16 0.87698 0.060863
1.17 0.879 0.059643
1.18 0.881 0.058443
1.19 0.88298 0.057263
1.2 0.88493 0.056102
1.21 0.88686 0.054961
1.22 0.88877 0.05384
1.23 0.89065 0.052737
1.24 0.89251 0.051653
1.25 0.89435 0.050587
1.26 0.89617 0.049539
1.27 0.89796 0.04851
1.28 0.89973 0.047499
1.29 0.90147 0.046505
1.3 0.9032 0.045528
1.31 0.9049 0.044568
1.32 0.90658 0.043626
1.33 0.90824 0.0427
1.34 0.90988 0.041791
1.35 0.91149 0.040898
1.36 0.91309 0.04002
1.37 0.91466 0.039159
1.38 0.91621 0.038314
1.39 0.91774 0.037483
1.4 0.91924 0.036668
1.41 0.92073 0.035868
1.42 0.9222 0.035083
1.43 0.92364 0.034312
1.44 0.92507 0.033555
1.45 0.92647 0.032813
1.46 0.92785 0.032085
1.47 0.92922 0.03137
1.48 0.93056 0.030669
1.49 0.93189 0.029981
1.5 0.93319 0.029307
1.51 0.93448 0.028645
1.52 0.93574 0.027996
1.53 0.93699 0.02736
1.54 0.93822 0.026736
1.55 0.93943 0.026124
1.56 0.94062 0.025525
1.57 0.94179 0.024937
1.58 0.94295 0.02436
1.59 0.94408 0.023796
1.6 0.9452 0.023242
1.61 0.9463 0.022699
1.62 0.94738 0.022168
1.63 0.94845 0.021647
1.64 0.9495 0.021137
1.65 0.95053 0.020637
1.66 0.95154 0.020147
1.67 0.95254 0.019668
1.68 0.95352 0.019198
1.69 0.95449 0.018738
1.7 0.95543 0.018288
1.71 0.95637 0.017847
1.72 0.95728 0.017415
1.73 0.95818 0.016992
1.74 0.95907 0.016579
1.75 0.95994 0.016174
1.76 0.9608 0.015777
1.77 0.96164 0.01539
1.78 0.96246 0.01501
1.79 0.96327 0.014639
1.8 0.96407 0.014276
1.81 0.96485 0.01392
1.82 0.96562 0.013573
1.83 0.96638 0.013233
1.84 0.96712 0.0129
1.85 0.96784 0.012575
1.86 0.96856 0.012257
1.87 0.96926 0.011946
1.88 0.96995 0.011642
1.89 0.97062 0.011345
1.9 0.97128 0.011054
1.91 0.97193 0.01077
1.92 0.97257 0.010493
1.93 0.9732 0.010222
1.94 0.97381 0.009957
1.95 0.97441 0.009698
1.96 0.975 0.009445
1.97 0.97558 0.009198
1.98 0.97615 0.008957
1.99 0.9767 0.008721
2 0.97725 0.008491
2.01 0.97778 0.008266
2.02 0.97831 0.008046
2.03 0.97882 0.007832
2.04 0.97932 0.007623
2.05 0.97982 0.007418
2.06 0.9803 0.007219
2.07 0.98077 0.007024
2.08 0.98124 0.006835
2.09 0.98169 0.006649
2.1 0.98214 0.006468
2.11 0.98257 0.006292
2.12 0.983 0.00612
2.13 0.98341 0.005952
2.14 0.98382 0.005788
2.15 0.98422 0.005628
2.16 0.98461 0.005472
2.17 0.985 0.00532
2.18 0.98537 0.005172
2.19 0.98574 0.005028
2.2 0.9861 0.004887
2.21 0.98645 0.00475
2.22 0.98679 0.004616
2.23 0.98713 0.004486
2.24 0.98745 0.004358
2.25 0.98778 0.004235
2.26 0.98809 0.004114
2.27 0.9884 0.003996
2.28 0.9887 0.003882
2.29 0.98899 0.00377
2.3 0.98928 0.003662
2.31 0.98956 0.003556
2.32 0.98983 0.003453
2.33 0.9901 0.003352
2.34 0.99036 0.00325
2.35 0.99061 0.00316
2.36 0.99086 0.00307
2.37 0.99111 0.00298
2.38 0.99134 0.00289
2.39 0.99158 0.00280
2.4 0.9918 0.00272
2.41 0.99202 0.00264
2.42 0.99224 0.002561
2.43 0.99245 0.002484
2.44 0.99266 0.00241
2.45 0.99286 0.002337
2.46 0.99305 0.002267
2.47 0.99324 0.002199
2.48 0.99343 0.002132
2.49 0.99361 0.002067
2.5 0.99379 0.002004
2.51 0.99396 0.001943
2.52 0.99413 0.001883
2.53 0.9943 0.001826
2.54 0.99446 0.001769
2.55 0.99461 0.001715
2.56 0.99477 0.001662
2.57 0.99492 0.00161
2.58 0.99506 0.00156
2.59 0.9952 0.001511
2.6 0.99534 0.001464
2.61 0.99547 0.001418
2.62 0.9956 0.001373
2.63 0.99573 0.00133
2.64 0.99585 0.001288
2.65 0.99598 0.001247
2.66 0.99609 0.001207
2.67 0.99621 0.001169
2.68 0.99632 0.001132
2.69 0.99643 0.001095
2.7 0.99653 0.00106
2.71 0.99664 0.001026
2.72 0.99674 0.000993
2.73 0.99683 0.000961
2.74 0.99693 0.000929
2.75 0.99702 0.000899
2.76 0.99711 0.00087
2.77 0.9972 0.000841
2.78 0.99728 0.000814
2.79 0.99736 0.000787
2.8 0.99744 0.000761
2.81 0.99752 0.000736
2.82 0.9976 0.000712
2.83 0.99767 0.000688
2.84 0.99774 0.000665
2.85 0.99781 0.000643
2.86 0.99788 0.000621
2.87 0.99795 0.0006
2.88 0.99801 0.00058
2.89 0.99807 0.000561
2.9 0.99813 0.000542
2.91 0.99819 0.000523
2.92 0.99825 0.000506
2.93 0.99831 0.000488
2.94 0.99836 0.000472
2.95 0.99841 0.000455
2.96 0.99846 0.00044
2.97 0.99851 0.000425
2.98 0.99856 0.00041
2.99 0.99861 0.000396
3 0.99865 0.000382
3.01 0.99869 0.000369
3.02 0.99874 0.000356
3.03 0.99878 0.000344
3.04 0.99882 0.000332
3.05 0.99886 0.00032
3.06 0.99889 0.000309
3.07 0.99893 0.000298
3.08 0.99896 0.000287
3.09 0.999 0.000277
3.1 0.99903 0.000267
3.11 0.99906 0.000258
3.12 0.9991 0.000249
3.13 0.99913 0.00024
3.14 0.99916 0.000231
3.15 0.99918 0.000223
3.16 0.99921 0.000215
3.17 0.99924 0.000207
3.18 0.99926 0.000199
3.19 0.99929 0.000192
3.2 0.99931 0.000185
3.21 0.99934 0.000178
3.22 0.99936 0.000172
3.23 0.99938 0.000166
3.24 0.9994 0.00016
3.25 0.99942 0.000154
3.26 0.99944 0.000148
3.27 0.99946 0.000143
3.28 0.99948 0.000137
3.29 0.9995 0.000132
3.3 0.99952 0.000127
3.31 0.99953 0.000123
3.32 0.99955 0.000118
3.33 0.99957 0.000114
3.34 0.99958 0.000109
3.35 0.9996 0.000105
3.36 0.99961 0.000101
3.37 0.99962 9.734E-05
3.38 0.99964 9.365E-05
3.39 0.99965 9.009E-05
3.4 0.99966 8.666E-05
3.41 0.99968 8.335E-05
3.42 0.99969 8.016E-05
3.43 0.9997 7.709E-05