-In 2015 Sales exceeded $250,000 Iventory to sales ratio: 69.5% -Perfume average
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Question
-In 2015 Sales exceeded $250,000
Iventory to sales ratio: 69.5%
-Perfume averaged 400 bottles per week
-Weekly MAD : $55
-Purchase Price of the bottle: $10 per half-once bottle
-During these 2 years, ordering policy has been to order 500 each week
-supplier always delivered these bottles exactly 2 weeks after order was placed
-cost toplace an order: $10
-Yearly taxes, insurance, storage costs was $25000
-Estimated cost of the capital at 20% per year
RCC is open 5 days a week (Tues-Saturday), 50 weeks a year.
(Z=1.28)
1) Develop decisionrule for "Q" system of inventory control
2) Develop decision rule for a "P" system of inventory control
3) Which of the systems would you recommand?
Janell Wilson founded the Rochester Cosmetic Company (RCC) in 2009 when she was a student at OU Since then, RCC has become increasingly successful: gross revenues in 2015 exceededWhile t While EXeeded preparing her 2015 tax returns, Ms. Wilson noticed that inventories had grown substantially - - the 2015 inventory to sales ratio was about RCC's tax accountant pointed out that she would require a substantial bank loan if inventory growth persisted. nebeeSrasto Wilsons's younger brother Tony was a junior at OU. Having taken POM 343, he offered to help analyze the inventory situation in return for tickets to an upcoming Tiger's game. After a lengthy discussion, Janell and Tony agreed that a thorough analysis of one particular item --half-ounce bottles of "Parfum d' Poisson" would provide an excellent indication of cost savings to be achieved through changes in ordering and inventory practices Tony spent a weekend rummaging through boxes full of company records, invoices and sales slips to get as much data as possible about "Parfum d' Poisson." He found that demand for this perfume averagedDO bottles per week over the last two years with a weekly mean absolute deviation of purchase price was $ per half-ounce bottle, packaged and ready to sell. During these two years, the ttles. RCC'S OO orderin order olicy has been to order bottles each week. The supplier has always delivered these bottles exactlyweeks after the order was placed. he e Janell and Tony met with the accountant and figured out that the cost to RCC for placing an order was s The cost of holding a bottle in inventory for a year was difficult to assess, but all agreed that the yearly taxes, insurance and storage costs of a bottle of "Parfum d' Poisson" was They further estimated the cost of capital at 11% per year. for a year wra ifhepuon asey 2500Explanation / Answer
Annula Demand , D = 400 x 50 = 20000 Ordering Cost, Co = $ 10 per order = 10 Holding Cost, Ch = $ 25000/(400 x 50) per unit per year 1.25 Fixed period Quantity = 500 Lead Time, LT = 2 weeks Average Inventory cost per annum,$ 250,000*0.695*0.20 Z =1.28 1.28 EOQ = SQRT{(2xDxCo)/Ch)} 566 Q system using EOQ Total holding cost per year 354 Total orderign cost per year 354 saftey stock Total Cost of Inventory through Q Sytsem 707 Second system, P system Total holding cost per year 312.5 Total ordering costs per years 400 Capital Cost of Inventory 0 Total Cost of Inventory through P Sytsem 713
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