.Il T-Mobile LTE 1:19 PM blackboard.stevenson.edu Additional Case Study: LaPlace
ID: 375364 • Letter: #
Question
.Il T-Mobile LTE 1:19 PM blackboard.stevenson.edu Additional Case Study: LaPlace Power and Light Co. The southeastem Division of LaPlace Power and Light Company is responsible for providing dependable electric service to customers in and around the area of Metairie, Kenner Destrehan, LaPlace, Lutcher, Hammond, Pontchatoula, Amite, and Bogalusa, Louisiana. One material used extensively to provide this service is the 1/0 AWG aluminum triplex cable, which delivers the electricity from the distribution pole to the meter loop on the house. The Southeastern Division Storeroom purchases the cable that this division will use. For the coming year, this division will need 499,500 feet of this service cable. Because this cable is used only on routine service work, practically all of it is installed during the 5 normal workdays. The current cost of this cable is 41.4 cents per foot Under the present arrangement with the supplier, the Southeastern Storeroom must take one twelfth of its annual need every month. This agreement was reached in order to reduce lead time by assuring LaPlace a regular spot on the supplier's production schedule. Without this agreement, the lead time would be about 12 weeks. No quantity discounts are offered on this cable; however, the supplier requires that a minimum of 15,000 feet be on an order. The Southeastern Storeroom has the space to store a maximum of 300,000 feet of 1/0 AWG aluminum service cable. Associated with each shipment are ordering costs of $50, which include all the costs from making the purchase requisitions to issuing a check for payment. In addition, inventory carrying costs (including taxes) on all items are considered to be 10% of the purchase price per unit per year Because the company is a govenment-regulated, investor-owned utility, both the Louisiana Public Service Commission and its stockholders watch dlosely how effectively the 1. Evaluate the effectiveness of the current ordering system. 2. Can the current system be improved?Explanation / Answer
1) Inventory management is very important aspect for any business. It is the management of inventory and stock. As an element of supply chain management, inventory management includes aspects such as controlling and overseeing ordering inventory, storage of inventory, and controlling the amount of product for sale.
Stocking the right amount of inventory is crucial. If the company orders too little, there will be a stock out situation and customers will start looking elsewhere. If company orders too much, there is a chance that it could be stuck with lots of extra stock that it'll be forced to sell at either lower prices, or risk having them become obsolete.
So, for Southern division of LaPlace power has to optimize its inventory levels, it should make few calculations and observations on how effectively it can order the stock and use it effectively without much wastage. Now let's check the calculations on how optimally can the company order the cable.
Effectiveness of current ordering system:
Demand for next year = $499,500
Ordering costs = $50
Inventory holding cost = 10% of 41.4 = 4.14
Optimal order quantity Q* = Sqrt [(2*499,500*50)/ 4.14] = 3473.50
Therefore, the number of purchase orders that are issued in an year = 499,500 / 3473.50 = 143.80 orders
The annual ordering costs = 499,500 (50) / 3473.50 = 143.80 (50) = $7190
The number of available workdays between each order based on 260 available work days = 260 / 143.80 = 1.8080
Therefore, based on the present findings, the average inventory level should be - 3473.50/2 = 1736.75
Hence the annual inventory cost = 1736.75 (4.14) = $7190
So, total inventory costs = $7190 (holding costs) + $7190 (ordering costs) = $14,380
Therefore, total inventory costs based on current ordering system =
$41,625/2 (4.14) + 499,500 (50) / 41,625 = $86,763.75
(Since Q* = 499,500/12 = 41,625)
The difference in the total inventory costs under both the systems = $86,763.75 - $32,175 = $54,588.75
Therefore Q* is more efficient.
2) Yes, current system can be improved by having a forced quota of 15000 feet of cable per month based on having to place their orders in 12 equal installments versus the inventory needed.
Southeastern division storeroom is spending over 1.5 times more in total inventory costs based on Q*. The company should re-negotiate the agreement in order to keep less inventory.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.