The total of these two costs for the gasket is reduced by 26 percent (from $846 to $627) per year. The safety stock with the proposed plan may be higher than the current plan, if the reason tort the excess back orders is that no safety stock is now being held (inaccurate inventory records or a faulty replenishment system are other explanations). We cannot determine the satiety stock level (it any) in the current system. The extra cost of safety stock for the proposed system is minimal, however.
Only seven gaskets are being proposed as safety stock, and heir annual holding cost is just another 518517) $12. 95. Surely the lost sales due to back orders are substantial with the current plan and will be much less with the proposed plan. One symptom of such losses is that II units are on back order in week 21. A lost sale costs a minimum of $4. 15 per gasket (0. 32. 0 $12. 99). If 10 percent Of annual sales were lost with the current policy, this cost would be $4. 16(0. 1 = $2,206 per year. Such a loss would be much reduced with the cycle-service level implemented With the proposed plan. DEBBY Drive Belt The following demand estimates are based on weeks 13 through 21 Weeks 11 and 12 are excluded from the analysis because the new product’s start-up makes them unrepresentative. We find the EGO as follows: Weekly demand average 52 belts/week Annual demand (D) 52(52) 2704 belts Holding cost $0. 97 per belt per year (or 0. 21 D 0. 52 0 $8. 89) Ordering cost SIS per order Turning now to R, where z remains at 1. 65, we use the data in the 08032 table to find: Standard deviation in weekly demand = 1,76 belts
Standard deviation in demand during lead time belts Average demand during the lead time Safety stock = 3(52) + 1. 65(3. 05) = 161. 03, or 161 belts After developing their plan, students again can compare the cost for the belts with what would be experienced With current policies. Cost Category 5 27 $115 $512 5229 With the belt, the total of these two costs is reduced by 55 percent. The satiety stock with the proposed plan may be higher than the current system, as with the gaskets, but added cost tort safety stock is only $0. 97(5) – $4. 85.
The big cost once gain is the lost sales due to back orders with the current plan, A 10th sale costs a minimum of $4. 27 per belt (0. 48 C $8. 89). If 10 percent of annual sales were lost, the cost with the current policy would be IS,SIS, Such a loss would be much less with the 95% cycle-service level implemented with the proposed plan.