SCM 301
First
Individual Assignment
Inventory
Analysis
SHORT
ANSWER QUESTIONS:
1. (12
points). Use the EOQ = .gif”> and ROP = .gif”> formulas to answer these.
(Hint:
Look at each formula carefully and figure out what each variable really
represents).
a. How could you control the variables in the EOQ formula if you
wanted to reduce EOQ inventory?
b. How could you control the variables in the ROP formula if you
wanted to reduce ROP inventory?
c. For each formula, which variable do you think would be the easiest
to change/manage? Why?
d. For each formula, which variable do you think you probably couldnt
change? Why?
2. (8
points). The JIT movement (having
inventory show up just as it is needed for production) has long argued that
firms should maximize their process
flexibility so that:
a. Inventory ordering costs are minimal
b. Demand levels are stabilized
c. Lead times are as small as possible
d. Inventory holding costs are set artificially high
Using the EOQ and ROP formulas (see
Question #3), explain how each of the efforts above (a. to d.) would be
consistent with the JIT push for lower inventory levels. (Hint: Identify each variable above and see what
impact it has on the above formulas does it lead to lower inventory (a lower
EOQ or ROP)?
PROBLEMS: Remember showing work is important!
3. (10
points). Joe runs a mail-order business
for gym equipment. Annual demand for
the TricoFlexers is 16,000 units. The annual holding cost per unit is $2.50,
and the cost to place an order is $50.
a. What is the economic order quantity?
b. Suppose demand for TricoFlexers doubles to 32,000. What is the new EOQ? Does the EOQ also double?
4. (16 points).
Computer City stocks and sells a particular brand of laptop. It costs the firm $625 each time it places an
order with the manufacturer for the laptops.
The cost of carrying one laptop in inventory for a year is $130. The store manager estimates that total annual
demand for the laptops will be 1500 units, with a constant demand rate
throughout the year. Orders are received
within minutes after placement from a local warehouse maintained by the
manufacturer. The store policy is never
to have stockouts of the laptops. The
store is open for business every day of the year except Christmas Day. Determine the following:
a. Optimal order quantity per order.
b. Minimum total annual holding and ordering costs.
c. The number of orders per year.
d. The time between orders (in working days).
5. (10
points). A manufacturing firm has been
offered a particular component part it uses according to the following discount
pricing schedule provided by the supplier:
1
199 units $65 each
200
599 units $59 each
600+
units $56 each
The manufacturing company uses 700 of the
components annually, the annual carrying cost is $14 per unit, and the ordering
cost is $275. (Hint: See text pp. 341-343).
a.
What is the optimal order size
under EOQ?
b.
What is the total cost using
the basic EOQ model?
c.
What is the total cost using
the second-level quantity discount?
d.
What is the total cost using
the highest-level quantity discount?
e.
Which amount should the firm
order?
6. (12
points). Buy-More stocks color graphics
monitors. The daily demand is
normally distributed with a mean of 1.6 monitors and a standard deviation of
0.4 monitors. The lead time to
receive an order from the manufacturer is a constant 15 days.
a. Determine the reorder point that will achieve a 98% service level. ( z value = 2.05).
b. What is the reorder point if the lead time is not consistent
at 15 days, but has a standard deviation of 0.5 days?
7. (12
points). OfficeMax is considering using
the Internet to order printers from Hewlett-Packard. The change is expected to
make the cost of placing orders drop to almost nothing, although the lead time
will remain the same. Using EOQ, ROP,
and the TAC formulas, what happens to
(Hint: Using
the previous formulas plus the Total Cost (TAC) formula from p. 337).
a. The order quantity?
b. The holding costs for the year?
c. The ordering costs for the year?
SCM 301First
Individual AssignmentInventory
AnalysisSHORT
ANSWER QUESTIONS:1. (12
points). Use the EOQ = .gif”> and ROP = .gif”> formulas to answer these. (Hint:
Look at each formula carefully and figure out what each variable really
represents). a. How could you control the variables in the EOQ formula if you
wanted to reduce EOQ inventory? b. How could you control the variables in the ROP formula if you
wanted to reduce ROP inventory?c. For each formula, which variable do you think would be the easiest
to change/manage? Why?d. For each formula, which variable do you think you probably couldnt
change? Why? 2. (8
points). The JIT movement (having
inventory show up just as it is needed for production) has long argued that
firms should maximize their process
flexibility so that:a. Inventory ordering costs are minimalb. Demand levels are stabilizedc. Lead times are as small as possibled. Inventory holding costs are set artificially highUsing the EOQ and ROP formulas (see
Question #3), explain how each of the efforts above (a. to d.) would be
consistent with the JIT push for lower inventory levels. (Hint: Identify each variable above and see what
impact it has on the above formulas does it lead to lower inventory (a lower
EOQ or ROP)?PROBLEMS: Remember showing work is important!3. (10
points). Joe runs a mail-order business
for gym equipment. Annual demand for
the TricoFlexers is 16,000 units. The annual holding cost per unit is $2.50,
and the cost to place an order is $50.a. What is the economic order quantity?b. Suppose demand for TricoFlexers doubles to 32,000. What is the new EOQ? Does the EOQ also double? 4. (16 points).
Computer City stocks and sells a particular brand of laptop. It costs the firm $625 each time it places an
order with the manufacturer for the laptops.
The cost of carrying one laptop in inventory for a year is $130. The store manager estimates that total annual
demand for the laptops will be 1500 units, with a constant demand rate
throughout the year. Orders are received
within minutes after placement from a local warehouse maintained by the
manufacturer. The store policy is never
to have stockouts of the laptops. The
store is open for business every day of the year except Christmas Day. Determine the following:a. Optimal order quantity per order.b. Minimum total annual holding and ordering costs.c. The number of orders per year.d. The time between orders (in working days).5. (10
points). A manufacturing firm has been
offered a particular component part it uses according to the following discount
pricing schedule provided by the supplier: 1
199 units $65 each 200
599 units $59 each 600+
units $56 eachThe manufacturing company uses 700 of the
components annually, the annual carrying cost is $14 per unit, and the ordering
cost is $275. (Hint: See text pp. 341-343). a.
What is the optimal order size
under EOQ?b.
What is the total cost using
the basic EOQ model?c.
What is the total cost using
the second-level quantity discount?d.
What is the total cost using
the highest-level quantity discount?e.
Which amount should the firm
order?6. (12
points). Buy-More stocks color graphics
monitors. The daily demand is
normally distributed with a mean of 1.6 monitors and a standard deviation of
0.4 monitors. The lead time to
receive an order from the manufacturer is a constant 15 days. a. Determine the reorder point that will achieve a 98% service level. ( z value = 2.05).b. What is the reorder point if the lead time is not consistent
at 15 days, but has a standard deviation of 0.5 days?7. (12
points). OfficeMax is considering using
the Internet to order printers from Hewlett-Packard. The change is expected to
make the cost of placing orders drop to almost nothing, although the lead time
will remain the same. Using EOQ, ROP,
and the TAC formulas, what happens to (Hint: Using
the previous formulas plus the Total Cost (TAC) formula from p. 337).a. The order quantity?b. The holding costs for the year?c. The ordering costs for the year?
