Question

Mighty Mugs is a retailer specialized in reusable mugs. All mugs are built out of metal and come in a wide variety of colors and patterns. Mighty Mugs started as a start-up in 2015 in Seattle and it has grown into a middle size company. Now that they have a significant sales volume, they have started to think about how to optimize their operations. You have been hired as a supply chain consultant and your first task is to improve the inventory management of one of their best-selling products, the Mighty Tumbler. The annual demand for Mighty Tumblers is normally distributed with a mean of 1963 and a standard deviation of 393. The annual holding rate is 20%, transaction cost $300 per order, and the cost per unit is $5. The lead time to receive the tumblers once an order has been placed is 2 weeks. Mighty Mugs owns the inventory from the moment it leaves the supplier's warehouse. (For planning purposes, consider 48 weeks in a year.) The current inventory policy being used by the company is to order 500 Mighty Tumblers every time the stock level hits 100 units.

Part A

1.What is the cycle service level offered by the current policy?

2.What is the item fill rate offered by the current policy?

Part B

1. Calculate the total annual inventory holding cost of the current inventory policy (order quantity of 500 units when stock level is at 100 units). Note: The inventory holding cost should include cycle stock, safety stock and pipeline inventory.

2. What is the Total annual inventory holding cost:

Part C

Propose a new continuous-review inventory policy that provides a 90% cycle service level at the minimum cost.

1. Order quantity Q:

2. Reorder point s:

Part D

1. Your boss thanks you for your proposal, but what she actually wants is a periodic-review policy in which new orders are placed once a month. This policy should provide a 90% cycle service level at the minimum inventory cost. What should be the value of Order-up-to-level S?

Part E

Mighty Mugs has decided to move forward with the periodic policy that you have proposed. Select other actions that could be taken to reduce the cost of inventory even further under this policy:

1.Decreasing the cycle service level.

2.Negotiating a shorter lead time.

3.Ordering bigger quantities.

4.Increasing the item fill rate.

5.Shortening the review period R.

6.None of the above

Answer 1