What is the optimal order quantity of exhaust manifolds

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Reference no: EM133225908

Assignment:

"Nordlund Boat Company has been repairing, refitting, and building custom boats for over 60 years in the Pacific Northwest."

The company is located in Tacoma, Washington. One of the engine's most critical components is the exhaust manifolds. The company purchases this item from the best manufacturers in the world. TJ is the buyer in charge of managing this item.

TJ's purchasing agent currently submits an order release for this item every 4 weeks. The company's annual demand is 400 units (2 units per working day). Nordlund's relatively low volume and quality focus, rather than volume focus, means the company cannot take advantage of quantity discounts. The supplier has agreed to deliver this item within 1 week following an order release. For this reason, Nordlund has never had a shortage of exhaust manifolds. The total time between the release date and date of receipt is 1 week or 5 working days.

The accounting has generated the following inventory-related costs. Procurement costs amount to $300 per order, including the labor costs, transportation costs, receiving and inspection costs, and moving costs. The holding cost is $200 per item per year, considering storage, damage, insurance, taxes, etc.

With the added emphasis on efficiencies in the supply chain, the company president has asked TJ to seriously evaluate the exhaust manifolds' purchase. One area to be closely scrutinized for possible cost savings is inventory procurement.

DISCUSSION QUESTIONS

1. What is the optimal order quantity of exhaust manifolds that should be placed in each order?

2. What is the exhaust manifold's reorder point (ROP)?

3. What cost savings will Nordlund realize if it implements an order plan based on EOQ?

Show the detailed work for each question.

Reference no: EM133225908

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