(Solved Homework): Home Depot has a spare parts warehouse in Canada to support its office equipment…

Home Depot has a spare parts warehouse in Canada to support its office equipment maintenance needs. Once every six months, a major replenishment shipment is received. If the inventory of any given part runs out before the next replenishment, then emergency air shipments are used to resupply the part as needed. Orders are placed semiannually, on January 1 and July 1 of each year. Home Depot must determine replenishment quantities for its spare parts. Historical data show that total demand for part 1AA-66 over a six-month interval is Poisson distributed with mean 6.5. The cost of inventorying the unneeded part for six months is $5 (which includes both physical and financial holding costs and is charged based on inventory at the end of the six-month period). The unit cost under regular, semiannual shipment is $32 per part, and the cost of an emergency shipment is $50 per part. It is now January 1 and Home Depot has three 1AA-66 parts currently in inventory. How many parts should they order under their regular shipment for the next six months? Please show your work. a) 2 b) 4 c) 5 d) 8

Expert Answer

Unit cost under regular for semiannual shipment = 32

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Inventory cost = 5

Total cost = 37

Emergency shipment cost = 50

Let a be average demand and t is time

then formula is

By putting value in above formala

They already have 3 parts with them

So the amount they should order this time should be 4

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