12. Variable or Fixed Reorder Periods

There are many ways to review vendors for ordering. The models considered are the Fixed Period Model (FP), the Fixed Quantity Model (FQ), and the Variable Period and Quantity Model (VPQ). The Fixed Quantity Model and Fixed Order Model mean the same thing in this book and are used interchangeably. The fixed quantity refers to the fixed order quantity. The Fixed Period Model allows for ordering for a fixed period of time. It may be every week, every four weeks, or once a month. The key is that no orders are permitted between intervals. The Fixed Quantity Model can set up minimum inventory levels or reorder quantities per item. When the stock falls below this quantity, place another order in a fixed quantity every time. This quantity may be an economic order quantity, a container load, a box, a pallet, or some other vendor minimum. The Variable Period and Quantity with Look-Ahead option Model of ordering checks the out-of-stock conditions of waiting an additional day or period. If the system detects an out-of-stock situation by waiting, an order is cut that day. In this example the period and quantity can vary. Let’s take a look at each model.

An advantage to the Fixed Period Model is the option to review a vendor out of schedule. It is possible to plan a schedule that won’t change as far as what and when vendors are reviewed. The reviewing process can be once a day or once a week but always on the same time or day of the week. The schedule can also be on a monthly basis such that the vendor is always reviewed on a particular day within a month. Nothing changes in the schedule. This is a saving of personnel time for the company because there are no unplanned orders. This minimizes the size of the purchasing staff.

The overall lead time (LT) is reprinted as (LT + RT), where RT is the length of the fixed period. The review period is defined as the time between reviews of the vendor for placing orders. When orders are reviewed every three weeks and the usage buckets are in weekly intervals, RT will equal three. The FP Model can be used to even out the workload of the purchasing people. The same number of items is reviewed each day with the same number of stock statuses or ordering forms.

The stock status, whether it is electronic or on paper, represents all the pertinent information about what is needed to place the vendor order. It will show the demand for a year, broken down into monthly time buckets. All the appropriate description, pricing, on-order, and on-hand information will be on the stock status. If the item is a faster moving item, it will be out of stock more often because of the volatility of demand. The Fixed Period Model will result in lower service levels and higher safety stocks. This will increase the size of the overall inventory. Overall lead times are the result of the supplier’s lead time plus the review time. The supplier’s lead time consists of the Manufacturer Lead Time plus Transit Time and also receiving and stocking time.

The Fixed Period Model can also be used to even out the receiving schedule on a daily basis throughout the month. If the vendor ships with a fairly regular lead time, the supplier can be told when to ship. This is accomplished with the ship date field of the purchase order. Some companies have actually simulated the optimum receiving schedule and back-dated the lead times to reflect the fixed review times for these vendors.

The ordering strategy is to order the amount that will equal the Predetermined Maximum Available inventory stock level, which equals PMA = OH + OO + SS − BO. The OH is the amount on hand at the order period. The SS stands for safety stock, which is equal to the extra stock needed to preserve the service level. The OO is the order quantity that needs to be ordered to reach the PMA level. If there are any backorders (BO), this amount will be subtracted from the PMA equation. This will increase the OO so the equation will equal the PMA.

Figure 12-1 shows the functionality of the Fixed Period Model in the perfect world where demand is constant from period to period. The terms used in Figure 12-1 are explained here:

• Safety stock, SS, is the predetermined amount of minimum stock needed to guarantee no stock outs. In this case, the safety stock is set to SS = $400 units.

• The OQ is the amount ordered to hit the Predetermined Maximum Available Inventory stock level, called PMA. The OQ is calculated as OQ = PMA − OH − BO. The assumption here is that the OH will not be negative. The minimum value for OH is $0.

• On-order, OO, is the amount on order.

• PMA is the predetermined maximum available stock level, which is equal to on-hand plus on-order, or OH + OO. The PMA value was determined to be $1,400 in this example.

• The average stock level is defined as 1/2 OQ in this example. OQ is constant so it’s equal to $900. This is also calculated as 1/2 (beginning inventory level + ending inventory level) = 1/2 × ($1,400 + $400) = $900.

• In this case PMA is defined as $1,400. So PMA = OH + SS + OQ.

• Since demand is constant, the order quantity at the beginning of each period is $1,000.

Figure 12-1. The Fixed Period Model average inventory

The final results for the Fixed Period Model are as shown here:

• PMA is $1,400.

• The average inventory is $900.

• Total sales is $4,000, which is composed of four periods of demand.

• Service Level is calculated as total sales / total demand.

• Total demand is calculated as total sales plus lost sales.

• There are no lost sales so the service level is 100%.

• The turns are calculated as total sales / average inventory = $4,000 / $900 = 4.44.

• The system should have turns equal to or greater than 4. However, demand in reality is not constant so the turns may change.

• The graph shows an order of $900 placed (the upper point or left point of each declining diagonal line). The order is received at the lower point of the diagonal line, and the P1, P2, P3, and P4 show the inventory levels when the product is received and stocked. At this time of receipt, the P values that represent the PMA values are equal to OO plus safety stock.

In the real world the FP Model does not have constant demand. It will vary over time. The best the FP Model can do in this example is the 4.44 turns with 100% service levels and $400 for safety stock when demand is constant and known. As demand starts to vary, the FP Model system begins to deteriorate. This process of deterioration is explained in the following analysis.

Figure 12-2 shows the FP Model for variable demand. The rectangles on top of the graph in Figure 12-2 show the total order quantity and the long dashed lines show when the order is placed. The short dashed lines show when an order is received, and the rectangles near the bottom show the available inventory.

Figure 12-2. Fixed Period Model safety stock for variable demand

The system uses the Fixed Period Model with variable demand. At the beginning of each period, order the OQ. Remember that in a Fixed Period Model, an order is generated only once a period. In this case an order is generated at the beginning of each period as long as the available inventory at that time is less than $1,400. The PMA value is defined as = $1,400. At the beginning of each period, order when the available is less than 1,400. The available is defined as the sum of the on-hand and the on-order (OH + OO). Order the quantity that brings the available back to the PMA or $1,400. The OQ = 1,400 − OH − OO. The OQ will be placed as long as the value for OQ is positive. The graph shows the ordering procedure for the following demands:

• The Demand for Period 1 = $800.

• The Demand for Period 2 = $1,200.

• The Demand for Period 3 = $1,400.

• The Demand for Period 4 = $600.

• P1

• Start the period with an OQ order quantity of $1,000. This order will be received at the beginning of Period 2.

• The total sales or revenue for Period 1 = $800.

• The beginning inventory in Period 1 (P1) is equal to = $1,400.

• The ending inventory for Period 1 = $600.

• The average inventory for the period is ($1,400 + $600) / 2 = $1,000.

• P2

• At the beginning of Period 2, create an order for the order quantity of ($1,400 − $600) = $800 (the upper rectangle). This order will be received at the beginning of Period 3.

• The beginning inventory = ($600 + $1,000) = $1,600 (the lower rectangle). That is, the order from Period 1 of $1,000 was received at the point where the inventory is $600.

• The total sales or revenue for Period 2 = $1,200.

• The ending inventory for Period 2 = $400.

• The order quantity, at the safety stock level of less than $1,400, is created in Period 2 = ($1,400 − $400) = $1,000. This order will be received in the end of Period 3.

• The ending inventory = $400. The receipt created in P2 will be received in Period 3.

• The average inventory for the period is ($1,600 + $400) / 2 = $1,000.

• Total sales or revenue = $1,200.

• P3

• The receipt created from order quantity OQ from Period 2 is $800.

• The beginning inventory is ($400 + $800) = $1,200 (the lower rectangle in Period 3).

• Total demand is $1,400.

• Lost sales is $200 with a service level of 95%.

• Total sales is $1,400 − $200 = $1,200.

• The ending inventory is $0.

• The average inventory for the period is ($1,200 + $0) / 2 = $600.

• P4

• The order quantity is $1,400 − $1,000 = $400 to be received in the beginning of Period 5.

• The beginning inventory is $1,000 from the receipt of the $1,000 order created in Period 3.

• Total Sales = $600.

• The ending inventory = $400.

• The average inventory for the period is ($1,000 + $400) / 2 = $700.

The final figures for the Fixed Period Model are as shown here:

• Total demand by period is $800 + $1,200 + $1,400 + $600 = $4,000.

• The lost sales are $200.

• Total sales are total demand − lost sales = $4,000 − $200 = $3,800.

• Average inventory is ($1,000 + $1,000 + $600 + $700) = $9,500 / 4 = $950.

• Turns are 4.61.

• The Fixed Period Model with variable demand has better turns of 4.61 compared to the Fixed Period Model with constant demand with turns of 4.44. The higher turns come with the expense of the lower service level of 95%.

If an item has a very low demand and a high minimum order, the Fixed Period and the Fixed Order system will be about the same. The advantage to the Fixed Order Model is that the vendor does not require review every three or four weeks as in the Fixed Period Model. The vendor is reviewed only when the order falls below the minimum order. It may take several months before the vendor will be seen for review.

This saves time for the company because a stock status is not shown for this vendor until needed. The stock status is the form, either electronic or paper, which represents all the pertinent information about the vendor. It will show the demand for a year, which is broken down into monthly time buckets. All the appropriate descriptions, pricing on-order, and on-hand information will be present. If the item is a faster moving item, it will be triggered more often because of the volatility of demand. This results in a lower overall review time for the item.

Overall lead times are the result of the supplier’s lead time plus the review time. If the item is reviewed more often, this makes the RT component smaller, which makes the overall lead smaller. The overall lead time is reprinted as (LT + RT). The Fixed Quantity can also be set to a minimum order which represents a discount quantity, a fixed run size to level an MRP run, or an economic order quantity. An example of the FQ, which refers to the Fixed Order Model, is as follows and also is illustrated in Figure 12-3:

• The lead time is one period in this example.

• The same Predetermined Maximum Available Inventory as in the above examples of FP Models is used.

• The only difference is the requirement for a triggering mechanism in the FQ Model to send the reorder notice. Ordering occurs when the item is less than the PMA. This allows for ordering at varying time intervals.

• The safety stock for the FQ Model is at SS = the PMA = $1,400.

• The fixed quantity is set to $1,200.

Figure 12-3. Fixed Order Model

• In the beginning of P1, the available inventory is at the safety stock level of $1,400, so Fixed Quantity Order is placed at $1,200.

• The dashed lines represent the fixed order quantity of $1,200, created at the start of Period 1.

• This order will be the receipt for the beginning of Period 2.

• The available inventory (AI) for Period 1 is OH + OO = $1,400 + $1,200 = $2,600.

• The new algorithm is what the safety stock is measured against. If AI falls below the SS level of $1,400, the system will place a fixed order quantity of $1,200.

• The middle rectangles represent the receipt of the last fixed order quantity of $1,200.

• This rectangle shows the new inventory level after the fixed order quantity of $1,200 is received.

• The dashed line shows when an order has been placed, and the middle box shows the fixed order quantity of $1,200.

• The top horizontal lines show the beginning and ending of each period.

• The square box represents the period number.

The system using the fixed quantity creates a purchase order only when the inventory is equal to the safety stock. This order level is where the on-hand and on-order is equal to P. The P value is defined as = $1,400. The graph in the figure explains the following:

• The FQ First Period:

• The beginning inventory for Period 1 is $1,400.

• The demand for the period is $800.

• Inventory at the end of the period is $600.

• The available inventory at the end of Period 1 is AI = $600 + $1,200 = $1,800. The safety stock level is above $1,400 so no new orders are placed yet.

• The average inventory for Period 1 is ($1,400 +$600) / 2 = $1,000.

• The FQ Second Period:

• Beginning inventory for the second period is equal to the ending inventory of the first period plus the receipt of the OQ from the first period, which is $600 + $1,200 = $1,800.

• Total sales or revenue for Period 2 = $1,200.

• If $400 of the $1,800 available inventories are sold, the stock level will be at the $1,400 safety stock level and another order for the third period will need to be placed. This will happen $400/$1,200 or 1/3 of the way into the second period. The new fixed order quantity will be received 1/3 of the way through the third period.

• Ending inventory is ($600 + $1,200 − $1,200) = $600.

• Average inventory is ($1,800 + $600) / 2 = $1,200.

• The SS level is reached when the inventory drops another $400. This is equivalent to $400/$1,200 or 1/3 the way through the second period. At this time, create an order for $1,200. This order will be received 1/3 of the way into the third period.

• The FQ Third Period:

• The third period begins with an inventory of $600.

• Sales are $1,400.

• There is an outstanding order for $1,200 to be received 1/3 of the way into the third period.

• Total available = $600 + $1,200 = $1,800, which is still above the safety stock level so do not order yet.

• Create another order when the inventory drops by $400 because the total available OH + OO is ($600 + $1,200) at the beginning of Period 4. This will be created at $400/$1400 or 29% or about 1/3 into the third period.

• At this time, the new available is $1,400 + $1,200 = $2,600.

• This order will be received 1/4 of the way in for Period 4.

• The ending inventory is $600 + $1,200 − $1,400 = $400.

• The average inventory for Period 3 is ($600 + $400) / 2 = $500.

• The FQ Fourth Period:

• Starting inventory is $400.

• Demand for the time is $600.

• The order placed in Period 3 is received when the inventory drops to $400 − .29 × $600 = $226.

• The availability is $226 + $1,200 = $1,426 and another order for $1,200 is placed when the inventory falls by $26. This order will be received in Period 5.

• Ending inventory is $600 + $1,200 − $600 = $1,200.

• Average inventory is ($400 + $1,200) / 2 = $800.

• The final figures for the Fixed Period Model are as given here:

• Total demand by period is $800 + $1,200 + $1,400 + $600 = $4,000.

• The average inventory for each period is the beginning inventory + ending inventory divided by 2.

• Period 1 average = $1,400 + $600 = $2,000 / 2 = $1,000.

• Period 2 average = $1,800 + $600 = $2,400 / 2 = $1,200.

• Period 3 average = $600 + $400 = $1,000 / 2 = $500.

• Period 4 average = $400 + $1,200 = $1,600 / 2 = $800.

• Average inventory is $1,000 + $1,200 + $500 + $800 = $3,500 / 4 = $875.

• The lost sales are $0.

• The service level is computed as total sales / total demand = 100%.

• The inventory turns are total sales / average inventory = $4,000 / $875 = 4.57 turns.

In this example, comparing the Fixed Period with the Fixed Quantity Models with 100% service levels shows very little difference. The turns for the FP Model with constant demand are 4.44. The turns with the FP Model with the variable demand is 4.61 but with a 95% service level. The turns for the FQ Models are 4.57. In comparing the FP Model with variable demand to the FQ, the turns are very close, 4.61 to 4.57. There is a 100% service level with the FQ Model; therefore, the FQ Model is better.

The VPQ Model looks ahead using the forecast system and does not have a fixed order period or fixed quantity to order. The order quantity or the review period can change. The new safety stock or PMA is the OQ = FCST − OH − OO. When the OQ is positive, an order can be placed. The FCST is the forecast for the purchasing periods being forecasted.

To begin, check to see whether an order is needed in the warehouse. Do this by checking to see what the projected demand against the on-hand and on-order is. Start the needs evaluation by checking the ABCDE inventory evaluation. Recall that the ABCDE inventory classification system breaks down the inventory into five distinct groupings of importance. Items must be classified in the ABCDE classification like this:

• A items have a service level of 98%.

• B items have a service level of 95%.

• C items have a service level of 92%.

• D items have a service level of 89%.

• E items have a service level of 85%.

It is necessary to know the importance of all the vendor items in order to evaluate the criteria for measuring the size of the safety stock and the need to order now. The criteria used was to weight the vendor items by service levels and see whether by waiting, the vendor would fall below the minimum threshold. Mathematically, this works out with the following formulas:

Vendor minimum service level is:

This is a weighted average by usage of all the personalized service level values assigned by the ABCDE system for all the items per warehouse. The P stands for the Personalized Service Level for the system, which ranges from 85% to 98%. The vendor minimum is called P = SSO, which stands for the Specified Service Overall by vendor by distribution center. Another name for P is SSO.

Let’s say a forecast system simulation is run to determine the service level at present if the order is placed at the next review time. Any vendors that are not experiencing immediate service-level problems, but cannot wait until the review period, are classified as danger-level vendors. Let’s say the lead time is four weeks and the review time is three weeks. If the choice is made to wait until the next review period, the lead time calculations will be increased by an additional three weeks. The total lead time to wait for the next order is 3 + 4 = 7 weeks.

The system uses usage buckets that represent three weeks of usage. There are 7 weeks in total lead time, which was rounded up to 9 weeks in this example. To simulate this effect in the forecast system, use the following formulas. The nine weeks is equal to 3 usage buckets of demand. Each usage bucket represents three weeks of demand. So there are 17 usage buckets each year. When there are four-week usage buckets, there are 13 usage buckets per year. It does not matter how you break up the yearly time buckets, so in the example the three week usage was used. The next part is to develop the Look-Ahead feature for the system. This is performed by netting the forecast extended over the lead time against the current on-hand. If the system nets a negative value, the item needs to be ordered. The formula for the Look-Ahead feature is OH − Forecast × 3 usage periods.

The next few paragraphs are very similar to the process talked about in the joint order allocation discussion, but it is prudent to discuss this again due to the new methodology using the logic. This methodology is the Variable Period and Quantity Model (VPQ) with the Look-Ahead feature.

If it is a horizontal item, use the formula Expected Stock Outs (ESO) = OH − (f _t+1 + f _t+2 + f _t+3), where the f _t+1 represents the forecast for the next period. The f _t+2 represents the forecast for the demand two periods ahead, and the f _t+3 represents the forecast of demand three periods in advance. The ESO calculates the lost sales per item. If ESO is negative, this represents lost sales and the quantity is called ELS for Expected Lost Sales. ELS shows the absolute value of the negative number if ESO is negative.

For example, if ESO shows a value of −525, this represents an ELS of 525 units that will be out of stock. Note that ELS is 0 when ESO is positive, which states that there are no out-of-stocks. This becomes a binomial decision. If ESO is negative, there is an out-of-stock condition. If ESO is positive, it is set to 0, which indicates no out-of-stocks. If the ESO value is 47, the ELS value is 0. The ESOs are summed and weighted by vendor and by warehouse. This model assumes a nine-week lead time because it uses three forecast buckets that represent the forecast for the next three periods, or f _t+1 + f _t+2 + f _t+3.

represents the issue that the ESO is a vendor value by warehouse. A note of caution is that the ESO must be warehouse dependent. In the case of one vendor servicing nine warehouses, there are nine values of ESOs. This is calculated by summing up all the items’ values for the vendor by warehouse for the individual item ESOs. The following list explains:

• Each item ESO is defined by ESO_k = OH_k − (f _kt+1 + f _kt+2 + f _kt+3). The ESO by vendor is defined as:

for all the items in the vendor by warehouse.

• Every time ESO is negative, the absolute value of ESO is added to the ELS bucket for all the vendor items by warehouse.

• If ESO is positive, it denotes the amount of extra or excess stock in the warehouse.

• The ESL is defined as the expected service level by vendor and by warehouse.

•

This indicates the expected service level by vendor and by warehouse.

• If ESO is less than SSO, buy before the next period.

• If ESO is equal to or greater than ESO, wait until the next period to order.

The beauty of this system is that it personalizes the relative importance of the vendor to the overall average. Each vendor will have a different ranking based on its individual SSO.

When using a trend item, use the FIT_t model for f_t, and for a seasonal model use the seasonal forecast model FS_t, which would be weighted by the base index values explained in Chapter 18, “A Technical Explanation of Forecasting Systems.”

If ESO was greater than SSO, calculate each forecast. This is now represented as the variable order quantity of OQ = D * (LT + RT) + k * MAD * (LT + RT). The order quantity (OQ) can vary also, and this is how it gets its name Variable Period and Quantity Model.

An example of the VPQ Model is as follows and also illustrated in Figure 12-4. A comparison to the other FQ or FP Models mentioned previously is included:

Figure 12-4. Variable Period Quantity Model

• The safety stock varies in this model. It looks at the next month’s anticipated demand f_t+1 and uses it to calculate the safety stock. Going into a period of increasing demand requires ordering the month before at a higher level. The order quantity is OQ = f _t+1 + $200. As a policy decision, the $200 was added to ensure additional safety stock.

• The dashed lines represent the order quantity, $1,400 and $1,600.

• This VPQ created only two orders as opposed to the other models:

• FP Model created three orders.

• FQ Model created four orders.

• The line inside the period breaks represents the receipt of the last order quantity plus the existing on-hand.

• The rectangle in Periods 2 and 3 shows the new inventory level after the order quantity receipt.

• The long vertical lines show the beginning and ending of each period.

• The top box represents the period number.

The system differs from the other models in that it tries to anticipate the future needs by using the forecast to predict the future.

• The First Period:

• Beginning Inventory = $1,400.

• Sales = $800.

• Ending Inventory = $600.

• The safety stock level at the beginning of Period 1 is set to f_t+1 = 1,200. This is the Look-Ahead feature.

• The order quantity is f_t+1 + $200 = $1,400. This is also a Look-Ahead feature.

• The example was simplified with only four periods and an estimate of the safety stock. There is no fixed safety stock level in this case. It can vary throughout the time series. In a real-time series analysis, use the following formula:

OQ = OH + OO - D * (LT) + k * MAD * (LT)).

• Note that the RT component is not included in the model OQ = OH + OO − D * (LT + RT ) + k * MAD * (LT + RT )).

• OH stands for on-hand inventory and OO stands for on-order or any inventory not yet received that has been ordered for delivery.

• If the product is needed, there is no reason to wait to order it. Hence, there is no reason to include the RT component in the equation.

• If the OQ becomes negative, an order determination must be made because the forecast is greater than the on-hand and on-order, so another order should be created to keep from running out of stock.

• The OQ is created at the start of the period of $1,000. It will be received at the start of the second period.

• The average inventory for the period is ($1,400 + $600) / 2 = $1,000.

• The Second Period:

• Beginning inventory is $600.

• Create an order when the available drops by $200 and this is $200 / $1,200 = 17% of the way into the second period. The inventory at the time of the receipt of the order is $400. The available = $1,800.

• When the inventory drops by $400, create another order.

• The new safety stock is f _t+1 = $1,400.

• The order quantity is f _t+1 + $200 = $1,600.

• Total sales or revenue for Period 2 = $1,200.

• Ending inventory is ($600 + $1,400 − $1,200) = $800.

• The Third Period:

• Beginning inventory is $800.

• Two weeks into the third period an order is received for $1,600.

• Sales are $1,400.

• Ending inventory is ($800 + $1,600 − $1,400) = $1,000.

• The Fourth Period:

• Starting inventory is $100.

• Demand for the time is $600.

• The ending inventory is $400.

• The final figures for the VQP Model are as shown here:

• Total demand by period is $800 + $1,200 + $1,400 + $600 = $4,000.

• The average inventory for each period is the beginning inventory + ending inventory divided by 2.

• Period 1 average = $1,400 + $600 = $2,000 / 2 = $1,000.

• Period 2 average = $600 + $800 = $1,400 / 2 = $700.

• Period 3 average = $800 + $100 = $900 / 2 = $450.

• Period 4 average = ($1,000 + $400) / 2 = $700.

• Average inventory is $1,000 + $700 + $450 + $700 = $2,850 / 4 = $712.50.

• The lost sales are $0.

• The service level is computed as total sales / total demand = 100%.

• The inventory turns are total sales / average inventory = $4,000 / $712.50 = 5.61 turns.

• This is well above the other two ways of forecasting FP and FQ.

In comparing the Fixed Period with the Fixed Quantity Models with 100% service levels, there is very little difference. The turns for the Fixed Period Model are 4.61. The turns for the Fixed Quantity Models are 4.57. The VQP Model indicates turns of 5.61, and this represents an increase in turns over the best model.

Let’s take a look at the Lean and Green effect: Note that the VMI vendors are already taken out of this analysis. They are some of the largest vendors, which can make up to 30% to 60% of total sales. In this case, the VMI vendors are around 40% of sales. Taking the VMI vendors out allows for the remaining 60% of sales to be considered according to the Variable Period and Quantity Models.

• Sales are at $943,720,533.

• Inventory turns are at 5.73 before VPQ.

• The inventory reduction in dollars for non-VMI merchandise is 60% × $164,609,694 48 = $98,765,816.

• Early order stock reduction is 3% × $98,765,816 = $3,420,573.

• Reduced inventory levels from order point are 4% × $98,765,816 = $4,560,764.

• Total inventory savings is $3,420,573 + $4,560,764 = $7,981,337.

• New inventory level after the VPQ Model with Look-Ahead is $164,609,694 − $7,981,337 = $156,628,357.

• The new turns are $943,720,533 / $156,363,031 = 6.03.

• Cost of capital savings is 2% × ($7,981,337) = $159,627.

• Total Lean Savings is $2,123,036 + $159,627 = $2,282,663.

• The Green Savings:

• Damaged inventory cost represents .75% of $7,981,337 inventory = $59,860.

• Obsolete inventory cost reduction is 9% of inventory reduction = $718,320.

The Total Green Savings is $778,180.

Total Lean and Green Savings for the Variable Period and Quantity Model is $2,282,663 + $778,180 = $3,060,843.