(Very Urgent, Structured Solution Needed) The daily usage of C is 20 for each da
ID: 2425276 • Letter: #
Question
(Very Urgent, Structured Solution Needed)
The daily usage of C is 20 for each day the company operates. The company operates 250
days per year.
Suppliers:
XX - Quoted lead time to deliver: 20 days. Fixed costs per order: $10.
WW - Quoted lead time to deliver: 2 days. Fixed costs per order: $30.
You will use a fixed order quantity inventory policy to order from the suppliers. Inventory
holding cost is 25% of the cost per year.
The cost of one unit of C supplied from the cheapest supplier (XX) is $10. The cost of one
unit of C supplied from WW is 20% more expensive compared to XX.
The safety inventory is set as twice the demand over the lead time until an order is received
from a supplier.
1. For C, what will be the economic order quantities to order from suppliers XX and WW?
2.Summarize the inventory policies (how much to order and when to order) for product C
when you work with supplier XX and WW?
3. For a given year, for each supplier find the following costs and then decide which supplier
to use for C?
For XX and WW
a. cycle inventory cost?
b. ordering cost?
c. safety inventory cost?
d. pipeline inventory cost?
e. total cost?
Explanation / Answer
Annual demand of C (D) = 20 *250 = 5000 components
Ordering Cost = 10 $ for Supplier XX
30 $ for Supplier WW
Carrying Cost = 25% of 10 for supplier XX = 2.5 per unit
25% of 12 for supplier WW = 3 per unit
EOQ (Supplier XX) = sqrt {(2*D*Co)/CC}
=sqrt {(2*5000*10)/2.5}
= 200 units
EOQ (Supplier WW) = sqrt {(2*D*Co)/CC}
=sqrt {(2*5000*30)/3}
= 316 units
Answer 2 :-
For Supplier XX
Total No of Orders = 5000/200 = 25 orders
Ordering Cost = 25 *10 = 250
For Supplier WW
Total No of Orders = 5000/316 = 16 orders
Ordering Cost = 16 *30 = $ 480
Total Cost of Inventory XX WW Annual Cost 50000 60000 Add Ordering Cost 250 480 Add Holding Cost 12500 15000 Total Cost of Inventory 62750 75480
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