Determine the optimal quantity , Operation Management

Assignment Help:

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.).]


Related Discussions:- Determine the optimal quantity

Explain technical proficiency has never been enough, Evaluate the following...

Evaluate the following statement: Technical proficiency has never been enough for professionals to grow beyond the staff level. Do you agree or disagree, and why? In your own words

How to view intermingling of management, The chapter notes that in 2010, in...

The chapter notes that in 2010, in roughly two-thirds of U.S. firms, the CEO is also the chair of the board of directors. More broadly this can be viewed as an intermingling of man

Explain why do companies that advertise their csr policies, 1. Why do compa...

1. Why do companies that advertise their CSR policies so often face serious controversies anyway 2. Identify an area in which Apple is regarded as responsible to a stakeholder

Availability of raw materials , Factors responsible for plant location choi...

Factors responsible for plant location choice - Availability of Raw Materials Areas where industrial raw materials are easily available obviously exert greater pull on locatio

Explain one test of whether marketing research, One test of whether marketi...

One test of whether marketing research should be done is whether different outcomes will lead to different marketing actions. whether different outcomes will lead to the

Explain what makes a constraint critical or active, 1) What makes a constra...

1) What makes a constraint critical or active? Explain. 2) Jim has used the theory of constraints to maximize the production of his active constraints and match the production r

Describe work breakdown structure, All of the following convetions are wide...

All of the following convetions are widely adopted project teams create the second level of the project Work Breakdown Structure (WBS) EXCEPT: A. The second level may be organized

Explain important to the project success, As a project manager was primaril...

As a project manager was primarily to make sure that project is done on schedule and under budget. Although these functions are very important, BRIEFLY mentioned what other functio

How library to research and analyze markets and competitors, E-commerce is ...

E-commerce is the trend that most companies are going toward now a days. You are to select one business that does not already employ e-commerce and develop an Internet strategy for

Describe the concepts of empowerment, Explain the concepts of empowerment, ...

Explain the concepts of empowerment, self-managed teams, and cross-functional teams, and develop an essay that argues for their inclusion in either a tall or flat organizational st

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd