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M451 Supply Chain Management – Inventory Sample Exam Questions

Note that these are sample questions and hence may not reflect the actual topics on your actual exam paper. Also note that your exam paper will contain a mix of qualitative and quantitative questions.

Question 1

A home appliance company produces a new line of quiet washing machines with a capacity of 200 washing machines per day. The annual demand is 25000 washing machines and it costs £250 to produce a quiet washing machine. The cost for setting up a production run to make the quiet washing machine is £300. The annual carrying cost is £0.80 per washing machine. Assume that there are 52 weeks and 365 working days in a year. Determine the following:

(a)

The optimal production run size and the maximum on-hand inventory level.

[4 Marks]

(b)

The optimal length of a production run and the optimal cycle length.

[4 Marks]

(c)

The optimal number of production runs per year.

[3 Marks]

(d) (e)

The total annual inventory cost. [4 Marks] Explain the key differences between a standard EOQ and a continuous rate EOQ. How should a company use the standard and continuous rate EOQ models in order to determine whether to produce or purchase a product? [5 Marks]

[Total marks for question = 20 Marks]

Question 2

A big retail company sells assembled furniture packages for living room including a TV table, a coffee table and a sideboard to its customers. Annual demand for assembled furniture is normally distributed with mean of 2100 and standard deviation of 70. The retail company orders its furniture from its partner carpentry company. It costs £100 to place an order and the lead time is 2 weeks. The retail company estimates that each stockout causes a loss of £50 in future goodwill. The retail company pays £80 for each furniture package and sells it for £120 and any furniture which is ordered but not sold will have a lower price of £60 in retailer’s sale. The annual cost for holding a furniture package in inventory is 30% of its purchase cost. Assuming that all stockouts result in lost sales, determine the following:

(a)

How many furniture packages should be ordered?

[4 Marks]

(b)

The probability that a stockout occurs in a cycle.

[6 Marks]

(c)

At what level of stock should the furniture package be re-ordered?

[7 Marks]

(d)

How much safety stock should be kept?

[3 Marks]

[Total marks for question = 20 Marks]

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