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 what would happen without a code, In the field of human services, t...

In the field of human services, there are very important ethical codes that should be followed as outlined by the National Association of Social Workers. After viewing the short vi

Explain and analyze klimptons strategy, Analyze Klimptons strategy for bein...

Analyze Klimptons strategy for being environmentally friendly. Determine how this strategy helps Klimpton make supplier channel decisions and manage the waste from its hotel and re

Explain these with the actual service delivered, Q1 Evaluate the service to...

Q1 Evaluate the service to club members and casual flyers by completing a table similar to Table 3.1. Q2 Chart the five performance objectives to show the dif¬fering expectations

Explain standard deviation, Under what kinds of circumstances might an orga...

Under what kinds of circumstances might an organization wish to use control limits of 2 standard deviations or even 1 standard deviation? What should it bear in mind when using the

EOQ model, Division X is growing and is in constant need of trained employe...

Division X is growing and is in constant need of trained employees. The demand rate for trained employees is relatively constant at 5 each month. The division can run a gaining p

Describe what the customer''s expectations, Explain what the customer's exp...

Explain what the customer's expectations are concerning the salesperson's attitude toward competition

Explain technology meets the requisite market potential, Pharma Blitz devel...

Pharma Blitz develops and markets new technological products to be used in health care. The development of a new product operates as follows. When a new technology meets the requis

Explain how can you stress to a marketing manager, How can you stress to a ...

How can you stress to a marketing manager that marketing need to occur online, no matter if the company is operating in a brick and mortor building

How reduce the safety stock, The annual demand for a product is 15,600 unit...

The annual demand for a product is 15,600 units. The weekly demand is 300 units with a standard deviation of 90 units. The cost to place an order is $31.20, and the time from order

Explain business knowledge competencies, Business knowledge competencies ar...

Business knowledge competencies are particularly important for which human resource role? Answer A) management developer B) employee advocate C) strategic partner D) functional exp

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