Reference no: EM132661277

With the outbreak of COVID-19, the world is experiencing a severe shortage of ventilators for treating patients in hospitals. DBS is a manufacturer of ventilators in Melbourne. It uses a special component to make its top-of-the range ventilators. DBS requires an average of 24,000 units of this special component every year in its manufacturing process. The major supplier of the special component that DBS has been dealing with, is a preferred supply chain partnerwho chargesa price per unit of $3000 for the component. Each order costs $500 to process. Because of limited storage space,the operations manager wants to factor ininventory holding cost at 13.75% of the unit cost.You have beenasked to:

(1) Determinethe economic order quantity(EOQ) and total annual costif ordering the EOQ number of units.How much will DBS be able to save by adopting the EOQ versus a current Q = 400?What is the reorder point with safety stock if lead time is 21days, standard deviation of weekly demand is 3.75 and on an average DBS operates for a total of 48weeks every year? Assume a z value of 1.645 corresponding to the desired service level as specified in DBS' operating procedures. What would the reorder point be without safetystock and how would you interpret each of the two reorder points? (3marks)

(2) Environmental considerations, material losses and waste disposal can be included in the EOQ model to improve inventory management practices. Assume that on an average 7.5% of the components that DBS purchases are damaged in transit thus becomingunusableandhave to be disposed of. Disposal cost is $250per unit. Find the new EOQ and totalannualcost when the disposal cost isconsidered. What implications does thishave for the sustainability of DBS' inventory practices?(3marks)

(3) Explain the implications to the operations managerif estimates of setup (order) costs include fixed, semi-variable, and pure variable costs while inventory-holding costs includes only pure variable cost