Hp Case Report
Consider the periodic-review, order-up-to model. Consider the air freight option by examining the cost of inventory for all models in Europe, using a 98% service level and the data given in Table 1 of the case. If the lead time is 5 weeks with sea freight and 1 week by air, and if the review period is 1 week because of production cycles at the factory, what savings in average inventory are available? Assume that the marginal production cost is roughly $300 and the selling price is $450. Per unit transportation cost is $10 by sea and $25 by air. Inventory carrying costs are 24% per year.
The following formula were used to arrive at the Safety stock and Average inventory:
Safety stock = k*σl+r
Average inventory = µ*R/2+Safety stock
Shipping
Options
Monthly mean
Monthly SD
Lead time
Review Period
Service level
Zα (0.98)
Sigma (L+R)
Safety stock
Average Inventory
39.6817338
81.3475544
86.635
420.2
203.9
249.725479
511.937233
564.462
15830.1
5624.6
6888.7
14121.835
16100.598
2301.2
1168.5
1431.11438
2933.78448
3221.434
2204.6
2700.07254
5535.14871
6061.149
306.8
103.1
126.271196
258.855952
297.206
Total
26331.484
Options
Monthly mean
Monthly SD
Lead time
Review Period
Service level
Zα (0.98)
Sigma (L+R)
Safety stock
Average Inventory
22.9102597
46.9660324
52.254
420.2
203.9
144.179073
295.567099
348.092