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 organizational structure in terms of creating a work, How would you...

How would you go about analyzing an organizational structure in terms of creating a work breakdown structure? What are the major organizational characteristics that you would evalu

Goldratt - theory of constraints, Goldratt - Theory of Constraints 1 i...

Goldratt - Theory of Constraints 1 identify the systems constraints  2 exploit the systems constraints  3 subordinate everything else to the above decision  4 elevate

How employer pay for employee benefits, 1. Why would the government not tax...

1. Why would the government not tax us for the Employee Benefits we receive? 2. As a percent of payroll, how much does your employer pay for Employee Benefits? 3. Explain the

What is a quality management system, Question: (a) What is a Quality Ma...

Question: (a) What is a Quality Management System (QMS) and why should an organization implement a Quality Management System? (b) Explain the eight fundamental Quality Manag

Explain inventory turnover, Baker Mfg. inc. wish to compare its inventory t...

Baker Mfg. inc. wish to compare its inventory turnover to those of industry leaders, who have turnover of about 13 times per year and 8% of their assets invested in inventory. 1. B

Explain ways you expect to use format design, Commercial and personal Websi...

Commercial and personal Websites, as well as print media, design their formats and include visuals for optimal audience appeal. Select a Website or print medium for this reflective

Explain reliable when choosing health care providers, Look at this website:...

Look at this website: customer satisfaction WHYY news report.mht 1. Do you feel that consumer/patient reviews are reliable when choosing health care providers? 2. Do you feel tha

MBA-2, What do you understand by"line balancing"?What happens if balance do...

What do you understand by"line balancing"?What happens if balance doesn''t exist?

Explain how to do aon in excel 2010, Does anyone know how to do aon in Exce...

Does anyone know how to do aon in Excel 2010 and if so can they contact me and wlk me through it sso that I can understand it

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