Simkin Hardware
Simkin Hardware
Among the many products stocked by the
Simkin Hardware Store is the ACE Model 89
Electric Drill.
 Sales of the drill have been rather low and
variable over the last year.
 Even though the sales are not high, the
quality of the drill is excellent and the per
unit profits are good.
 Simkin wants to offer a complete product
line; so continued stocking of the ACE 89 is
desirable.
Simkin Hardware

There has been a rising number of customer
complaints that the store is out of drills. Because
customers usually have an urgent need for products
when they come into the store, in the event of a
stockout they go across the street to purchase their
desired product from Simkin’s strongest competitor.

Lately, Art has ordered 10 drills at a time and reordered
when 5 drills remain in stock. But he is very concerned
about the high opportunity cost of the stock-outs as
well as the rising customer complaints. Another
concern is the increased cost of ordering when the
ordering quantity is small.
Demand profile
Daily Demand
Frequency
0
10
1
20
2
40
3
80
4
30
5
20
Totals
200
Probability
Cumulative
Probability
Random Number
Demand profile
Daily
Demand
Frequency
Probability
0
10
10/200 =
0.05
1
20
20/200 =
0.10
2
40
0.20
3
80
0.40
4
30
0.15
5
20
0.10
Totals
200
1.00
Cumulative
Probability
Random
Number
Demand profile
Daily
Demand
Frequency
Probability
Cumulative
Probability
0
10
0.05
1
20
10/200 =
0.05
20/200 =
0.10
2
40
0.20
0.35
3
80
0.40
0.75
4
30
0.15
0.90
5
20
0.10
1.00
Totals
200
1.00
0.15
Random
Number
Demand profile
Daily
Demand
Frequency
Probability
Cumulative
Probability
Random
Number
0
10
0.05
01 – 05
1
20
0.15
06 – 15
2
40
10/200 =
0.05
20/200 =
0.10
0.20
0.35
16 – 35
3
80
0.40
0.75
36 – 75
4
30
0.15
0.90
76 – 90
5
20
0.10
1.00
91 – 00
Totals
200
1.00
Lead time profile
Lead
Time
Frequency
1
8
2
20
3
12
Totals
40
Probability
Cumulative
Probability
Random
Number
Lead time profile
Lead
Time
Frequency
1
8
= 8/40 =
2
20
= 20/40 =
0.50
3
12
=12/40 =
0.30
Totals
40
Probability
0.20
Cumulative
Probability
Random
Number
Lead time profile
Lead
Time
Frequency
1
8
2
20
3
12
Totals
40
Probability
Cumulative
Probability
= 8/40 =
0.20
= 20/40 =
0.50
0.20
=12/40 =
0.30
1.00
0.70
Random
Number
Lead time profile
Lead
Time
Frequency
1
8
2
20
3
12
Totals
40
Probability
Cumulative
Probability
Go to Excel
= 8/40 =
0.20
= 20/40 =
0.50
0.20
=12/40 =
0.30
1.00
0.70
Random
Number
EOQ Model When To Order
Inventory Level
Average
Inventory
(Q*/2)
Optimal
Order
Quantity
(Q*)
Reorder
Point
(ROP)
Lead Time
Time
What values for Q & R does the
EOQ model suggest?

What is D – daily demand?


What is L – lead time?


Find expected lead time
What is H?


Find expected demand
0.50 per drill per day
What is S?

$10 per order
Expected lead time
Lead
Time
1
Frequency
Probability
8
0.20
2
20
0.50
3
12
Totals
40
0.30
Expected lead time =
0.20 * 1 +
0.50 * 2 +
0.30 * 3 = 2.1 days
Expected demand
Daily
Demand
Frequency
Probability
0
10
0.05
1
20
0.10
0.05 * 0 +
2
40
0.20
0.10 * 1 +
3
80
0.40
0.20 * 2 +
0.40 * 3 +
4
30
0.15
5
20
0.10
Totals
200
1.00
Expected demand =
0.15 * 4 +
0.10 * 5 = 2.8 drills
What values for Q & R does the
EOQ model suggest?
2DS
2(2.8)10
Q* 

 10.58
H
0.50
ROP  D * L  2.8 * 2.1  5.88
Simulate
Option
Q
R
1
10
5
2
3
4
5