1. HarleyDavidson has its engine assembly plant in Milwaukee and its motorcycle

Question

1. HarleyDavidson has its engine assembly plant in Milwaukee and its motorcycle assembly plant in Pennsylvania. Engines are transported between the two plants using trucks, with each trip costing $1,000. The motorcycle plant assembles and sells 300 motorcycles each day. Each engine costs $500, and Harley incurs a holding cost of 20 percent per year.

a. How many engines should Harley load onto each truck?

b. As part of its initiative to implement justintime (JIT) manufacturing at the motorcycle assembly plant, Harley has reduced the number of engines loaded on each truck to 100. If each truck trip still costs $1,000, how does this decision impact annual inventory costs at Harley?

Explanation / Answer

So inventory costs decreases significantly

1) This is a problem of EOQ Thus, Ordering Costs, S 1000 Price 500 Holding costs, H 20% H 100 Demand per day 300 Demand per year (assuming 300 days/year) D 90000.00 Optimum Quantity Q* sqrt(2*D*S/H) Q* 1341.64 So Rounding off the no. of engines to be loaded is 1342 2) Average Annual inventory earlier 671 (Q/2) Inventory Costs 671*500*20% 67100 JIT average inventory 50 (Q/2) Inventory Costs 50*500*20% 5000

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