Determine the optimal quantity , Operation Management

Suppose you are overseeing the purchasing of a certain commodity for the following year. The demand for this item is estimated to be 20,000 units/year, and steady throughout. Every time you process and receive a shipment of this commodity, you incur a cost of $800. Finally, the cost to keep one item in inventory is $3.00 annually.

Ordinarily, cost per unit is $18. However, if you purchase 10,000 or more in a delivered lot, the cost drops to $17.50 each.

(a.) Determine the optimal quantity of this commodity to be purchased in each lot. (Write down the relevant figures that enable you (and POM-QM) to choose.)

(b.) Consider the lot of 10,000 items (regardless of whether you chose this policy). By how much does the inventory cost of this policy differ from that of the other candidate policy? (Specify the relevant costs.)

(c.) Suppose you could lease, for free, superior forklift equipment that would drop the ordering cost to $100 for each delivered lot. Would this reduction cause you to change your optimal policy? Why or why not (write down the results)? How much money will this save you annually?

(d.) These days, third party logistics (3PL) are all the rage. With 3PL, other firms are subcontracted to carry out some or all of the inventory function. Suppose the supplier offers such a service to you. Their idea is to hold inventory for you; this will reduce both your ordering costs and your holding costs.

Specifically, you still pay for the goods when a lot is purchased but you do not actually stock the items in large quantities. Suppose this convenience reduces the holding cost to $1.50 per item per year (instead of $3). Additionally, your warehouse space, equipment and operators are not tied up because only small quantities are released to you. Suppose, then, that because of this the ordering cost for the small size "releases" is just $5 (instead of $800).

There is a catch to all of the above savings. To provide this service, your supplier will charge you the increased price of $18.50 per item. No quantity discounts apply. (Your demand is still 20,000/year.)

FIND: In this new regime, figure out what the optimal policy is and its associated cost (write them down!). Is this a better deal for your company than the policy in part (a.)?

(e.) Thus far, we have assumed that the demand of 20,000 units/year is steady over time. Now suppose that the demand varies. Specifically, suppose that the lead time (LT) to receive this product is 5 working days (assume 250 working days to the year). This implies that the demand during LT averages 400 units. Additionally, suppose that the standard deviation of demand during LT is 100 units.

FIND: How much safety stock will you need to meet a 99% service level? What will the annual cost of providing this additional stock? [NOTE: please work with the original problem description, NOT the modifications in (c.) and (d.).]

Posted Date: 2/23/2013 6:01:37 AM | Location : United States







Related Discussions:- Determine the optimal quantity , Assignment Help, Ask Question on Determine the optimal quantity , Get Answer, Expert's Help, Determine the optimal quantity Discussions

Write discussion on Determine the optimal quantity
Your posts are moderated
Related Questions
As the advisor to Keyes what offensive or defensive strategic options would you recommend for blockbuster as the company moves forward? In particular, how would you approach the te

Develop a forecast for years 2 through 12 using exponential smoothing with ƒÑƒn= .4 and a forecast for year 1 of 6. Plot your new forecast on a graph with the actual data and the n

One of the most important issues discussed in the collective bargaining process is seniority. It is one of those components of the workplace that seems to impact every worker, whet

What is delegation? There is a limit to what a particular can perform single-handed. After a point, the other persons working in the organisation have to be connected for perfo

Need to know how to write a professional Goodwill Message goodwill is that intangible that makes the world go round. With our overtasked lives, I'm not sure it is getting the at

The Bawl Corporation supplies alloy ball bearings to auto manufacturers in Detroit. Because of its specialized manufacturing process, considerable work-in-process and raw materials

Scheduling In Mass Continuous Scheduling In Mass Continuous and Project Type Production System The scheduling aspects mentioned so far have been concerned with job shop

Part 1: A company is using the Economic Order Quantity (EOQ) model to manage its inventories. Suppose its inventory holding cost per unit per year doubles while the annual demand a

1. Please explain, in detail, the strategic issues both external and internal that Whole Foods' faces. 2. Please explain, in detail, the strengths, weaknesses, opportunities and th

What's an effective mission statement for the Chattanooga Ice Cream Division?