Supply Chain Management

Chapter 11 Exercises 10 & 13 and Chapter 12 Exercises 1 & 2

Supply Chain Management

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Chapter 11: Managing Economies of Scale in a Supply Chain: Cycle Inventory


Harley purchases components from three suppliers. Components purchased from Supplier A are priced at $5 each and used at the rate of 20,000 units per month. Components purchased from Supplier B are priced at $4 each and are used at the rate of 2,500 units per month. Components purchased from Supplier C are priced at $5 each and used at the rate of 900 units per month. Currently, Harley purchases a separate truckload from each supplier. As part of its JIT drive, Harley has decided to aggregate purchases from the three suppliers. The trucking company charges a fixed cost of $400 for the truck with an additional charge of $100 for each stop. Thus, if Harley asks for a pickup from only one supplier, the trucking company charges $500; from two suppliers, it charges $600; and from three suppliers, it charges $700.


1. Suggest a replenishment strategy for Harley that minimizes annual cost. Assume a holding cost of 20 percent per year.

2. Compare the cost of your strategy with Harley’s current strategy of ordering separately from each supplier.

3. What is the cycle inventory of each component at Harley?

Demand for fasteners at W.W. Grainger is 20,000 boxes per month. The holding cost at Grainger is 20 percent per year. Each order incurs a fixed cost of $400. The supplier offers an all unit discount pricing scheme with a price of $5 per box for orders under 30,000 and a price of $4.90 for all orders of 30,000 or more.


1. How many boxes should Grainger order per replenishment?

Chapter 12: Managing Uncertainty in a Supply Chain: Safety Inventory
Weekly demand for smartphones at an Apple store is normally distributed, with a mean of 500 and a standard deviation of 300. Foxconn, the assembler, takes four weeks to supply an Apple order. Apple is targeting a CSL (cycle service level) of 95 percent and monitors its inventory continuously.


1. How much safety inventory of cell phones should the Apple store carry?

2. What should it’s ROP (reorder point) be?

Weekly demand for jeans at a GAP store is normally distributed, with a mean of 100 and a standard deviation of 50. The supply plant takes three weeks to supply a Gap order. The store manager monitors its inventory continuously and reorders jeans when the available inventory drops below 350.


1. How much safety stock does the store carry?

2. What CSL (cycle service level) does the store achieve?

3. If the store manager wants to target a CSL (cycle service level) of 95 percent, how much safety inventory of jeans should the store carry?

4. What should its ROP (reorder point) be?

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