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Ruby-Star Incorporated is considering two different vendors for one of its top-selling products, which has an average weekly demand of 50 units and is valued at $75 per unit. Inbound shipments from vendor 1 will average 350 units with an average lead time (including ordering delays and transit time) of 2 weeks. Inbound shipments from vendor 2 will average 500 units with an average lead time of 1 week. Ruby-Star operates 52 weeks per year; it carries a 2-week supply of inventory as safety stock and no anticipation inventory. a. What would be the average aggregate inventory value of this product if Ruby-Star used vendor 1 exclusively? b. What would be the average aggregate inventory value of this product if Ruby-Star used vendor 2 exclusively? c. How would your analysis change if average weekly demand increased to 100 units per week?​

Answer :

sharmaaarav1267485

Answer:

Let's calculate:

a. For vendor 1:

Average weekly demand = 50 units

Average inbound shipments = 350 units

Average lead time = 2 weeks

Safety stock = 2 weeks

Average inventory = (Average weekly demand * Average lead time) + Safety stock

= (50 units/week * 2 weeks) + 100 units

= 200 units + 100 units

= 300 units

Average aggregate inventory value = Average inventory * Unit value

= 300 units * $75/unit

= $22,500

b. For vendor 2:

Average weekly demand = 50 units

Average inbound shipments = 500 units

Average lead time = 1 week

Safety stock = 2 weeks

Average inventory = (Average weekly demand * Average lead time) + Safety stock

= (50 units/week * 1 week) + 100 units

= 50 units + 100 units

= 150 units

Average aggregate inventory value = Average inventory * Unit value

= 150 units * $75/unit

= $11,250

c. If average weekly demand increases to 100 units per week:

Repeating the calculations for both vendors with the new average weekly demand:

a. For vendor 1:

Average inventory = (100 units/week * 2 weeks) + 100 units

= 200 units + 100 units

= 300 units

Average aggregate inventory value = $22,500

b. For vendor 2:

Average inventory = (100 units/week * 1 week) + 100 units

= 100 units + 100 units

= 200 units

Average aggregate inventory value = 200 units * $75/unit

= $15,000

Therefore, the analysis changes with the increased demand, showing that vendor 2 becomes more favorable in terms of average aggregate inventory value.

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