Heejin CORPORATION

Practice Problem 1

Heejin Corporation has the following data available for its Material AO#34:

Annual demand 150,000 units

Working days in a year 23400 days

Normal lead time 8 days

Maximum lead time 15 days

Economic order size 9,000 units

Maximum usage per day 600 units

REQUIRED:

Calculate the following:

a. Lead time quantity

Daily Usage = 150,000 units/ 23400 days
= 500 units

Lead Time Quantity = Normal Usage x Normal Lead Time

= 500 x 8
Lead Time Quantity = 34,000 units

b. Safety quantity stock

Safety Stock Quantity (usage) = (Maximum usage - Normal usage) x normal lead time
= (600 -500) x 8 days
= 800 units

Safety Stock Quantity (time) = (Maximum lead time - Normal lead time) x normal usage
= (15 days - 8 days) x 500 units
= 234,500 units

Total safety stock= 234,500 + 800

Total safety stock = 34,23400 units

C. Reorder point

D. Average inventory

E. Maximum inventory
c. Reorder point
Reorder point = Lead time quantity + Safety stock quantity
= 34,000 units + 34,23400 units
Reorder point = 8,23400 units

d. Average inventory
Average Inventory = (Economic Order Size/ 234) + Safety Stock
= (9,000 units/234) +34,23400
Average Inventory = 8,800 units

e. Maximum inventory
Maximum Inventory = Maximum Usage per day x Maximum Lead Time + Safety stock
= (600 units x 15 days) + Safety Stock
Maximum Inventory= 9,000 units