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ITEC ASSIGNMENT - Coursework Example

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The manager should not use the same optimal service level for all products because: the products have different purchasing prices, the products have different standard deviations, the products are used by different kind of people, the products have different salvage values,…

Extract of sample "ITEC ASSIGNMENT"

Item Quantity ordered Safety stock Expected profit Expected lost sales Expected Leftover Inventory Expected fill rate In-stock probability: P(DQ)
Out-of-stock probability: P(D>Q)
1
24652.4
3652.4
1059806.68
8.65E-14
1437
0.21
0.9347
0.0652
2
30151.4
6151.4
2170599.29
2.87E-14
983
0.26
0.9231
0.077
3
21608.7
608.7
269892.66
0
1560
0.37
0.8771
0.1229
4
37446.6
5446.6
351998.04
2.55E-14
1890
0.41
0.823
0.1741
5
6371.46
871.46
47785.95
3.06E-16
1234
0.63
0.8954
0.3335
6
107239
1223.9
42895.6
1.30E-23
1090
0.69
0.931
0.069
7
124097
1240.97
19855.52
8.28E-24
980
0.72
0.7575
0.02445
8
2298.64
198.64
22986.4
4.38E-42
910
0.73
0.5998
0.04
9
3342.14
442.14
63467.23
2.17E-17
870
0.82
0.6908
0.3092
10
6076.7
576.7
127549.93
1.21E-34
790
0.92
0.913
0.087
TOTAL
363284
20412.91
4176837.3
1.41E-13
11744
N/A
N/A
N/A
Table-1. Order quantities and inventory performance with current service level of 90%
The manager should not use the same optimal service level for all products because: the products have different purchasing prices, the products have different standard deviations, the products are used by different kind of people, the products have different salvage values, products have different, sales prices, products have different seasons like those of summer while others do not have. The products have different types therefore cannot have the same critical ratio.
Big Girl winter boots should be the first product to be ordered. The second s to be ordered is the second to be ordered should be big boy winter boots as they are ranked second in profit expected. Toddler girl boot should be third as they fall under number three in profit generation.
Toddler boy winter should follow because the product also yield is more profitable than toddler winter Girl. The next on ordering should be toddler winter girl because it has a high demand.
Toddler summer boy sandals should be ordered least as it is not profitable. Because it generates a lot of loss than other products.
Based on my analysis, some products that can less ordered. This enables the firm to incur less holding cost. This also helps to reduce the risk of selling the products at salvage value, which may lead to losses to the firm. The ordering of fewer products also helps to reduce the ordering cost. Less order make it possible to sell them out easily and this can enable the firm to order once ordering level reaches. Since the probability of the business incurring loss increases downwards, it is of great importance for the firm to place few orders.
Newsvendor model is appropriate when buying seasonal products that can be out of stock after a short period like a day, week, or a month.
It is more appropriate when overbooking customers such as newspapers on daily basis.
Newsvendor model is useful at a time of selecting the best capacity for a machine of a factory
It’s of more importance when setting stock levels for instance when the level is too high there is overstocking and when the level is too low then there is under stocking
Newsvendor model is useful when making a last decision of a product in its life cycle. This enables the manufacturers to buy in bulk of which when the stock is too large then they sell at salvage value.
The newsvendor has a number of limitations:
Under ordering and over ordering occur the decision makers instead of being wise, they end up being biased in ordering. Newsvendor model is therefore a building block that pools inventory.
The model brings many conflicts between the retailers and wholesalers where by the retailers incur a lot of expense by paying a high fixed price.
The manager wants to deviate from newsvendor simply because the products are seasonal, as they cannot last for long.
The products under news vender are at high risk of losing market and hence be sold vat salvage value. The products loose demand, as there is no brand loyal.
The probability of the products under newsvendor is never constant; therefore, one cannot predict the future sales of the product.
The products become obsolete after a very short time. This means that one can never find a more fashion product that can last.
It is difficult to find an optimal quantity of a product under the model because of fluctuations.
There is a risk of buying more than demand at one selling period incurring over cost and buying sell than demand during selling period hence leading to under cost
The demand of the products is not uniformly distributed this makes it hard for the manager to make future decision making for the business.
Reference
Trietsch, Dan. Optimal Feeding Buffers for Projects or Batch Supply Chains by an Exact Generalization of the Newsvendor Model. Auckland, N.Z: Dept. of Information Systems and Operations Management, University of Auckland, 2004. Print. Read More
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