Mgmt120

TechniqueReviewforMaterialsManagement
Thissectioncontainsstudyproblemsforthefollowingtopics.
InventoryMeasures
BillofMaterialsConcepts
IndependentDemandInventoryModels
MaterialsRequirementsPlanning
Answersforalltheproblemsarefoundinthebackofthissection.

MaterialsManagementProblems

MaterialsManagementProblems

1.JoanPontius,thematerialsmanageratMoneyEnterprises,isbeginningtolookfor
waystoreduceinventory.Arecentaccountingstatementshowsinventoriesatthe
followinglevels.
Rawmaterials: $2,345,000
Workinprogress: $5,670,000
FinishedGoods: $2,161,000
Thisyear'scostofgoodssoldshouldbeabout$29.4million.Assuming52business
weeksperyear,expresstotalinventoryas:
a.weeksofsupply

b.inventoryturns

2.Oneproductlineisexperiencing7turnsperyear,anditsannualsalesvolume(at
cost)is$750,200.Howmuchinventoryisbeingheld,ontheaverage?

3.MINC,Inc.keeps4itemsinstock,threemachinesandarepairkit.Thecurrent
inventorylevelandlastyearsdemandareshownbelowalongwiththevalueoftheitems.
(Assume52weeksperyear.)
Lastyear's Currently
Value
demand
onhand
ofitem
Model1
17,000
2500
$200
Model2
15,000
1500
$300
Model3
8,500
2000
$150
Repairkits
450
100
$24.00
a.Howmanyweeksofsupplydotheycurrentlyhaveonhand?
b.Ifthecurrentinventorylevelischaracteristic,howmanyturnsperyeardoesMINC
Inc.have?

InventoryMeasures1

MaterialsManagementProblems

4.Asubassemblyisproducedinlotsof450units.Itisassembledfromtwo
componentsworth$50.Thevalueadded(forlaborandvariableoverhead)in
manufacturingoneunitfromitstwocomponentsis$40,bringingthetotalcostper
completedunitto$90.Thetypicalleadtimefortheitemis5weeksanditsannual
demandis1872units.Thereare52businessweeksperyear.
a.Howmanyunitsofcycleinventoryareheld,onaverage,forthesubassembly?
Whatisthedollarvalueofthiscycleinventory?
b.Howmanyunitsofpipelineinventoryareheld,onaverage,forthesubassembly?
Whatisthedollarvalueofthisinventory?(Assumethatthetypicaljobinpipeline
inventoryis50percentcompleted.Thusonehalfthelaborandoverheadcostshave
beenadded,bringingthetotalunitcostto$70(or$50+$40/2).

5.ThebillofmaterialsfromitemAshowsthatitismadefromtwounitsofB.Item
B,inturnismadefromtwounitsofpurchaseditemC.Theperunitpurchasepriceof
itemCis$10.Thetablebelowgivesadditionalinformation.Noanticipationinventory
isheld.
a.whatisthedollarvalueofinventoryheld,onaverage,foreachitem,brokendown
bycycle,safetystock,andpipelineinventory?
b.HowmanyweeksofsupplyareheldtosupportdemandforitemA?
Value
added
($/unit)

Lead
time
(wk)

Item
A

40

50

80

20

80

20

160

160

400

100

InventoryMeasures2

Lot
size
(units)

Safety
stock
(units)

Demand
(units/wk
)

MaterialsManagementProblems

6.Considerthebillofmaterialsdiagrambelow.
a.HowmanyimmediateparentsdoesitemIhave?itemBitemE?
b.HowmanyuniquecomponentsdoesitemAhaveatalllevels?
c.HowmanyuniquepurchaseditemsdoesitemAhaveatalllevels?
d.HowmanyofitemIareusedineachitemA?
e.HowmanyuniqueintermediateitemsdoesproductAhaveatalllevels?
f.Theitemshavethefollowingleadtimes.
A:2weeks
D:2weeks
G:5weeks
B:1week
E:4weeks
H:3weeks
C:3weeks
F:3weeks
I:2weeks
Whatisthecustomerresponsetimeif
i.allitemsarespecials(madetoorder)
ii.onlyitemsEandIarestandard(madetostock)
iii.onlyitemsE,F,G,H,andIarestandard
A

B(2)

E(1)

I(1)

C(1)

F(1)

E(1)

I(1)

D(1)

G(1)

E(1)

H(1)

I(1)

BillofMaterials3

MaterialsManagementProblems

7.ItemAismadefromcomponentsB,C,andD.ItemB,inturn,IsmadefromC.
ItemDisalsoanintermediateitem,madefromB.Usagequantitiesarealloneexcept
thattwounitsofitemCareneededtomakeoneunitofB.Drawthebillofmaterialsfor
itemA.

8.ConsidertheBOMbelow,whichincludesleadtimes.
a.Whatwouldbethecustomerresponsetimeifeveryitemisaspecial?
b.WhatwouldbethecustomerresponsetimeifitemsDandFaremadestandards?
c.Listeachitemandwhetheritisanenditem,apurchasedpart,oranintermediate
item.
d.ArethereanysubassembliesinthisBOM?Ifso,whichitem(s)?
A

B(2) 2wk

D(1) 2wk

E(1) 3wk

G(1) 1wk

BillofMaterials4

1wk

C(1) 5wk

F(1) 4wk

MaterialsManagementProblems

9.Adiscountappliancestoresellscombinationradioandtapecassetteplayersfor
only$60perunit.Thesehandheldunitshaveexceptionalsoundqualityandareingreat
demand.Fortheseunits:
Demand=80units/wk
Ordercost=$70/order
Annualholdingcostrate=25%ofsellingprice
Desiredcycleservicelevel=75%
Leadtime=2wk
standarddeviationofweeklydemand=20units
currentonhandinventoryis183units,withnoopenordersorbackorders.
Thestoreoperates52weeksperyear.Ithasacontinuousinventoryreviewsystem.
a.WhatistheEOQ?
b.Whatwouldbetheaveragetimebetweenorders(inweeks)usingthisEOQ?
c.WhatshouldRbe?
d.Aninventorywithdrawal0f10unitshasjustoccurred.Isittimetoreorder?

IndependentDemand5

10.Supposethatyouwereinchargeoftheinventoryofanitemworth$45perunit.
Every4weeksyouplaceanorder.Todeterminetheorderquantity,youtakethecurrent
onhandquantityandsubtractitfrom400.Theresultistheamountyouorder.The
weeklydemandforthisproductis60,withastandarddeviationof8.Thecosttoplace
anorderis$35,andtheholdingcostrateis$10perunitperyear.Youdesiretoavoid
havingastockout92%ofthetime.Assumethereare52weeksinayear.Theleadtime
isaconstant1week.
a.Whatisthecurrentannualinventorycost(holdingandordering)forthisitem?
b.Ifyoucannotchangethefrequencyoforders,couldyousavemoneybychanging
yourtargetamountfrom400?
c.Ifyoucouldchangeyourfrequencyoforders,whatwouldbethe"optimal"
orderingpolicy(UseperiodicreviewsystemandroundPtonearestweek)?How
muchmoneywouldthissaveoverthecurrentstrategy?

11.Giventhefollowingdata,whatistheEOQ(optimalQ)andR?
Annualdemandis20,800units
Orderingcostis$40perorder
Holdingcostrateis$2perunitperyear.
Leadtime=2weeks
Safetystocklevel,setbycompanypolicy,is1000units.
Assume52weeksinayear.

IndependentDemand6

MaterialsManagementProblems

12.Giventhefollowingdata,computetheparametersforaperiodicreviewsystem(P
andT)foraPthatwouldprovideanaverageorderquantityapproximatelyequaltothe
EOQ.
Annualdemandis20,800units
Orderingcostis$40perorder
Holdingcostrateis$2perunitperyear.
Leadtime=2weeks
Safetystocklevel,setbycompanypolicy,is1000units.
Assume52weeksinayear.

IndependentDemand7

13.a.CompletetherecordusinganFOQof45units
Item:
Lotsize
Desc.
Leadtime
Parents:
12 13 14 15 16 17 18

19

Grossrequirements

25

25

Scheduledreceipts

45

30

40

25

units

weeks

20

21
30

Projectedonhand|25
Plannedreceipts
Plannedorderreleases
b.CompletetherecordusingtheL4Llotsizingrule.
Item:
Lotsize
Desc.
Leadtime
Parents:
12 13 14 15 16 17 18

19

Grossrequirements

25

25

Scheduledreceipts

45

30

40

25

units

weeks

20

21
30

Projectedonhand|25
Plannedreceipts
Plannedorderreleases
c.CompletetherecordusingthePOQ,withP=3lotsizingrule
Item:
Lotsize
units
weeks
Desc.
Leadtime
4
Parents:
12 13 14 15 16 17 18 19 20 21
Grossrequirements

25

Scheduledreceipts

45

Projectedonhand|25
Plannedreceipts
Plannedorderreleases

MRP8

30

40

25

25

30

MaterialsManagementProblems

14.TheMPSforproductAcallsfor70unitstobecompletedinweek4and80units
inweek7(theleadtimeisoneweek.)TheMPSforproductBcallsfor150unitsinweek
7(theleadtimeis2weeks).Developthematerialrequirementsplanforthenextsix
weeksforitemsC,D,E,andF.Identifyanyactionnoticesthatwillbegenerated.
DataCategory
Lotsizerule
Leadtime
Scheduledreceipts
Onhandinventory

C
FOQ=100
1
100(week
1)
35

Item
D
L4L
2
None

E
F
FOQ=150 POQ(P=3)
3
2
150(week
None
3)
125
400

C(1)

D(1)

D(1)

E(1)

F(1)
F(1)

E(1)

F(1)

F(1)

E(1)

F(1)

MRP9

Product

Lead
Time

Item:
Desc.
Parents:

Grossrequirements
Scheduledreceipts
Projectedonhand|
Plannedreceipts
Plannedorderreleases
Item:
Desc.
Parents:

Grossrequirements
Scheduledreceipts
Projectedonhand|
Plannedreceipts
Plannedorderreleases
Item:
Desc.
Parents:

Grossrequirements
Scheduledreceipts
Projectedonhand|
Plannedreceipts
Plannedorderreleases
Item:
Desc.
Parents:

Grossrequirements
Scheduledreceipts
Projectedonhand|
Plannedreceipts
Plannedorderreleases

MRP10

MPS
4

Quantities
5
6

Lotsize
Leadtime
1

units
weeks
4

Lotsize
Leadtime
1

units
weeks
4

Lotsize
Leadtime
1

units
weeks
4

Lotsize
Leadtime
1

units
weeks
4

MaterialsManagementProblems

Answers:
1.averageaggregateinventoryvalue=$10,176,000
weeklysales==.565mill/week
weeksofsupply==17.9918weeksofsupply
inventoryturns==2.892.9turnsperyear
2.turns=
7=
3.

Thusave.aggr.inventoryvalue==107,171107,000

Model1
Model2
Model3
Repair
kits

Lastyear's
demand

Currently
onhand

Value
ofitem

Valueon
hand

17,000
15,000
8,500

2500
1500
2000

$200
$300
$150

$500,000
$450,000
$300,000

450

100

$24.00

$2400

Yearly
valuein
sales
$3.4mill
$4.5mill
$1.275
mill
$.0108
mill

Ave.aggr.inventoryvalue=$1.2524mill.
Annualsales=$9.185mill.
weeklysales==$.176650mill
weeksofsupply==7.097weeksofsupply
turns==7.33turnsperyear

Answers11

4.cycleinventory==225units
$value=(225)($90)=$20,250
pipelineinventory=dL==180units
$value=(180)($70)=$12,600
5.Theinventoryitemsarevalued,perunit,asfollows:
Item
Unitvalueupon
UnitvalueasWIP
completion
C
$10
$10
B
2($10)+$20=$40
2($10)+$20/2=$30
A
2($40)+$50=$130
2($40)+$50/2=$105
a.Averageinventoryindollars
Item
cycle
safety
A
$130(80/2) $130(20)=
=$5,200
$2,600
B

$40(160/2)
=$3,200

$10(400/2) $10(100)=
=$2,000
$1000

Ave.aggr.inventoryvalue=$24,600
b.weeksofsupply==4.7weeks
6.a.I:1;B:1;E:3
b.8
c.4
d.4
e.4:E,B,C,D
f.i.11
ii.10
iii.5

Answers12

pipeline
$105(1)
(40)=
$4,200
$30(2)
(80)=
$4,800
$10(1)
(160)=
$1,600

total
$12,000
$8,000
$4,600

MaterialsManagementProblems

7.
A(1)

B(1)

C(1)

C(2)

D(1)

B(1)

C(2)

8.a.10
b.7
c.Aend,Bintermediate,Cintermediate,Dpurchased,Eintermediate,
Fpurchased,Gpurchased
d.Bisasubassembly
9.a.d=80;D=(80)(52)=4160
H=i*price=(.25)(60)=15
EOQ==197.04=>197
b.Timebetweenordersis===2.462.5weeks
c.R=d(LT)+zL
z,fromnormaltablewithcycleservicelevel=75%,=.67
demandisvariable,leadtimeisconstant:L= L ( d ) =
R=(80)(2)+(.67)=179units
d.18310=173.Thisislowerthatthereorderpointfiguredinpartc,soanorder
shouldbeplaced.
10.a.Currentapproach:P=4,T=400
Safetystock=Td(P+L)=400(60)(4+1)=100
C=+=$2,655
b.Withaserviceleveldesiredof92%,thesafetystockcanbereduced.z=1.41
Thenewtargetinventorywouldbe:
T=d(P+L)+zd P L =(60)(4+1)+1.41(8)=300+25.2=325.2

Answers13

Safetystockwouldbe:
=Td(P+L)=325.2(60)(4+1)25units
C=+=$1,905
Savings=$2,655$1,905=$750
c.D=(d)(ppy)=(60)(52)=3120peryear(ppy=periodperyear)
optimalP==2.46weeks2weeks

newT=(60)(2+1)+1.41(8)=180+19.5=199.5200
safetystock=200(60)(2+1)=20units.
newC=+=$1,710forasavingsof$945.
11.EOQ==912
Usually,R=d(L)+zL,butinthiscasesafetystockissetat1000.
ThatmeansR=d(L)+safetystockorR=+1000=1800
12.d===400
P==2.282.3weeks
Asinproblem11,safetystockisgiven,thustherevisedformulaforTis
T=d(OI+LT)+safetystock=(400)(2.3+2)+1000=2720

Answers14

MaterialsManagementProblems

13.a.
Item:
Desc.
Parents:

Lotsize
Leadtime
12

Grossrequirements

25

Scheduledreceipts

45

Projectedonhand|25

45

13

14

15

30

45

15

15

16

17

40

25

Plannedreceipts

4
5

Plannedorderreleases

45

45

20

25

4
0

21
30

30

45

4
5

Lotsize
Leadtime
12

Grossrequirements

25

Scheduledreceipts

45

Projectedonhand|25

45

13

14

15

30

45

15

15

Plannedreceipts

16

17

40

25

Plannedorderreleases

19

units

weeks

b.
Item:
Desc.
Parents:

18

45
4

25

25

25

18

units

L4L

4
19

weeks

20

25

30

21

0
30

3
0

c.CompletetherecordusingtheP=3lotsizingrule
Item:
Lotsize
Desc.
Leadtime
Parents:
12 13 14 15 16 17 18

19

Grossrequirements

25

25

Scheduledreceipts

45

Projectedonhand|25

45

30

45

15

15

40

25

Plannedreceipts

5
0

Plannedorderreleases

50

P=3 units
4 weeks

3
0

20

21
30

5
5

55

Answers15

Answers16

MaterialsManagementProblems

14.

Item:
C
Desc.
Parents:

1perA

Grossrequirements
Scheduledreceipts
Projectedonhand|35
Plannedreceipts
Plannedorderreleases
Item:
D
Desc.
Parents:

1perA,

Grossrequirements
Scheduledreceipts
Projectedonhand|0
Plannedreceipts
Plannedorderreleases
Item:
E
Desc.
Parents:

1perB,

Grossrequirements
Scheduledreceipts
Projectedonhand|125
Plannedreceipts
Plannedorderreleases
Item:
F
Desc.
Parents:

1perD,

Lotsize
Leadtime
1

100
135

135

100
1

65

65

65

70

100

1perB
1

Lotsize
Leadtime
2

70

1perD
1

70

0
70
150

0
80

Lotsize
Leadtime
2

55

55

150

150

1perE
1

70

L4L
2

150
150
55

80
125
150

Lotsize
Leadtime
2

150
0
150

units
weeks
6

80
85
100
units
weeks
6

80
0
80

150
3

units
weeks

125
150

125

150

P=3
2

units
weeks

Grossrequirements
220
150
150
80
Scheduledreceipts
Projectedonhand|400 180
30
80
0
0
0
Plannedreceipts
200
Plannedorderreleases
200
Actionnotices:Order70Dsnow,order150Esnow,order200Fsnow
Delayshipmentof100Csuntilperiod3,ifpossible.

Answers17