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 diagnostic equipment and communications, Last year, the manager of ...

Last year, the manager of the service department at East Woods Ford instituted a customer opinion program to find out how to improve service. One week after service on a vehicle wa

Explain estimate of the dates of the milestones, You are in charge of organ...

You are in charge of organizing a dinner-dance concert for a local charity. You have reserved a hall which will seat 30 couples and have hired a band. Develop a scope statement for

System complexity - boulding taxonomy, System complexity - Boulding taxonom...

System complexity - Boulding taxonomy  To obtain an insight into the nature of the system with which the operations manager is dealing, consider the economist Kenneth Boulding

Explain what is te annual carrying cost, Uick cheif cookers sell at an aver...

Uick cheif cookers sell at an average [ace of 12500 per month. Each cooker costs the company $100. The annual carrying cost for each cooker is 10%. Each Each or

Explain activity would be reduced, You will find that some resources are la...

You will find that some resources are labor-based while others are not. For example, let's say you had one person initially scheduled for a job and it was going to take ten days. L

Estimate the mean and standard deviation, 1. How do variables and attribute...

1. How do variables and attributes differ?  2. Estimate the mean and standard deviation of the following measurements.

Explain what is marketing research, What is Marketing Research? Why do succ...

What is Marketing Research? Why do successful firms conduct marketing research for their products/services? Discuss the six steps in the Marketing Research process and relate to an

Production and Operation Management, What do you understand by “line balanc...

What do you understand by “line balancing”? What happens if balance doesn’t exist?

Explain objectives of organisational development, Explain objectives of org...

Explain objectives of organisational development. Objectives of Organisational Development (i) Enhancement in the performance of the organisation. (ii) Enhancement in t

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