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Name: Course: Instructor: Date: Demand and Stores Solution to Question 1 According to Simchi-Levi et al (2008) under a continuous review inventory replenishment policy, inventory is continuously monitored and an order for Q units is placed when the inventory level reaches the reorder point that has been established…
Therefore, the average daily demand during lead time is equal to L ? AVG. The safety stock is determined scientifically and is applied with the average daily demand during lead time to ensure that there is an adequate supply of inventory is in stores to prevent a loss of sale due to stock-out. The safety stock, which is the minimum level to which stock is expected to fall, is represented by the formula: z ? STD ? vL It is expected that inventory will fall to this minimum level just before the order for Q is received. Immediately after the order for Q units is received the inventory will return to its maximum level but will be depleted over time based on the average daily demand (AVG). The reorder level depends on AVG which is reviewed continuously. When Q units are added to the safety stock the maximum inventory level is achieved. This inventory is depleted over time. Therefore, it is expected that the expected level of inventory before receiving the order is: z ? STD ? vL While the expected level of inventory immediately after receiving the order is: Q + z ? STD ? vL Solution to Question 2 The periodic review inventory replenishment policy requires that inventory be reviewed periodically at regular intervals and that an appropriate quantity is ordered so as to achieve the base stock level after each review. ...
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