You\'ve recently been hired as a project manager at a distributor of fruits and
ID: 424390 • Letter: Y
Question
You've recently been hired as a project manager at a distributor of fruits and vegetables located in Northern Kentucky. An operations manager has asked for your help in analyzing current inventory policies related to packing crates. She's looking for a lower cost policy Currently, the operation buys crates from a regional supplier. The operation uses 1500 crates each month. Annual carrying cost is 18% of the $6 acquisition cost per crate. Each order costs approximaely $40. Crate supplier lead time is 5 days. Currently, the operation orders crates every two months. You've been asked to develop a lower cost alternative to the existing crate inventory policyExplanation / Answer
A.
The assumption that the demand is constant is one the requirement for applying EOQ model.
Ans: assume that demand is constant
B.
Currently the company is placing order every two months, means ordering two months demand.
Monthly demand = d = 1500 crates
Order quantity = 2*1500 = 3000 crates
C.
S = ordering cost = $40
A = annual cost = 12*1500 = 18,000
I = holding charge = 18%
C = Unit cost = $6
H = annual holding cost = 0.18*6 = $1.05
EOQ = ?(2AS/H) = ?(2*18000*40/1.08) = 1154.7
Ans: EOQ = 1155 units
D.
Total inventory cost of EOQ policy = annual ordering cost + annual holding cost
TIC(eoq) = (A/Q * S) + (Q/2*H) = (18000/1155*40) +(1155/2*1.08)
TIC (eoq) = $1247
TIC (current) = (6*40) + (3000/1500*1.08)
TIC (current) = $1860
Difference in cost = 1860-1247 = $613
Ans: about $613
E.
Reorder point = lead Time x daily demand
Assume 30 days per month, daily demand = 1500/30 = 50 units
Reorder point = 5 days * 50 units/day = 250 units
Ans: 250
F.
No. Of orders for EOQ policy = A/Q = 18000/1155 = 15.54 orders
Thus,EOQ policy requires frequent ordering as compared to current policy.
Ans: true
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.