Question

In: Operations Management

Case - 3 You are newly appointed assistant plant manager and have been assigned the task...

Case - 3
You are newly appointed assistant plant manager and have been assigned the task of
examining ordering policies for supplies used in production. You found that your employer
was using an EOQ policy for ordering cases of lubricating oil. You called the finance
department and was told that for the purposes of analysis, the appropriate holding cost
was 24 % per year. Demand over the past three years was for 7486 cases or an average
of 2495 cases per year. At a cost of $ 6.32 per case, the cost of ordering the oil was
estimated to be $ 83 per order. You used these numbers to find the EOQ.
EOQ = ? 2DS / H .= ? [2* (7486 / 3) *83 ] / 0.24 * 6.32 .? 523
The result basically agreed with the employer's ordering size of 500. You then developed a table
showing oil usage for the past 36 months.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Gross requirement 2003 345 28 417 52 0 379 288 76 221 34 322 227 2389
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Gross requirement 2004 379 32 489 50 4 433 267 83 244 32 354 259 2626
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Gross requirement 2005 368 4 423 48 15 382 306 84 218 38 333 252 2471
Gross Total 7486
Note: Holding cost is per period
Also the case assumes there are 36 periods
So Holding cost is to be defined for a month
Now you are going to experiment on the past figures to calculate optimal inventory cost.
Q-1 Would lot for lot ordering be better than the current EOQ policy? Show calculations as proof.
Q-2 Would part period balancing be the best possible policy? Show calculations as proof.
Q-3 Is just in time inventory a relevant notion for lot sizing?
Q-4 How many orders would you recommend in 36 months? Show order cost as proof.
Q-5 Give recommendations with solid arguments?
Q-6 Any suggestions for improvements.

Solutions

Expert Solution

1. a. Based on EOQ of 523 units the total Cost of ordering + Inventory holding cost for 3 years is is 2429[ 810 + 877 + 742]

b. Based on Lot by Lot the cost is 996 * 3 = 2988

Hence the cost by EOQ method is lower that lot by lot

2.

1. EOQ =

Where D is Average annual demand

S is cost of ordering

H is annual holding cost per unit

= EOQ= 523

Below is the table where the Ordering Cost + Holding cost is calculated for Lot by Lot , EOQ and Part balancing method.

2. As shown above the total cost by part balancing is 1859 [ 740 + 603 + 516] its is lower than other methods.

3. Yes with lot size we order only the inventory required for the period and don't have any carry over inventory

keosha answered 5 months ago
Next > < Previous

Related Solutions

As a newly appointed emergency manager for your community, your Director gives you a large task...
As a newly appointed emergency manager for your community, your Director gives you a large task on day 1. Your task is to write a proposal on why faith-based organizations should be involved in disaster mitigation and planning. This proposal will help fund collaborative efforts between the groups, but your local officials do not feel it is necessary to fund this project. Convince them otherwise!
You have been appointed as a team leader to a group of auditors assigned to assess...
You have been appointed as a team leader to a group of auditors assigned to assess RMZ Trading, a big retail store selling mobile phones in Nizwa. The store has been operating in Nizwa for the past five years and has been doing well. It has many customers and income is coming in. Because of this, the store is usually keeping a large stock of its inventory of mobile phones, in varying brands and models. While analyzing the inventory of...
Assume that you are the newly appointed risk manager for a medical facility.
Assume that you are the newly appointed risk manager for a medical facility. What steps would you take to perform comprehensive risk assessment for your organization? who will you need help from in performing this assessment?
You are a senior adviser to the EPA. You have been assigned the task of creating...
You are a senior adviser to the EPA. You have been assigned the task of creating an oversight board which will be in charge of the creation and enforcement of regulations relating to mining. Your plan calls for the appointment of ten (10) members. To attract the best possible board members you are considering adding a provision that no member may be terminated except "only for good cause." What are the arguments both for and against the "only for good...
You are a newly appointed partner in the audit firm where you have been working from...
You are a newly appointed partner in the audit firm where you have been working from the past ten years. This year, the audit firm was engaged to audit the year-end accounts and tax returns of Younous Company, a relatively new company located in Nizwa. Younous Company is engaged in online shopping business that sells all sorts of women products – clothes, shoes, make-up and accessories. They also design and produce their own clothes line but outsource the other products...
Assuming you have been appointed as the Human Resource Manager in a firm and you have...
Assuming you have been appointed as the Human Resource Manager in a firm and you have been asked to draw an occupational health policy/programme in the wake of the COVID-19 pandemic, discuss four (4)elements you would incorporate into designing the policy.
You are a newly hired HIM professional and you have been assigned to spend time with...
You are a newly hired HIM professional and you have been assigned to spend time with an HIM student who is participating in their professional practice exercise (PPE). The student needs to learn about the following types of reimbursement methodologies ACO's (Accountable Care Organizations). Fee-for-service (including self-pay, traditional retrospective payment, and managed care) Episode-of-care (capitated payment, global payment, and prospective payment) Develop a training session with examples utilizing PowerPoint inclusive of the reimbursement methodologies mentioned above. Include in your training...
Congratulations! You have been appointed as a new product manager with Samsung and have been tasked...
Congratulations! You have been appointed as a new product manager with Samsung and have been tasked to introduce the latest smartphone in a new country. Choose and research a country other than the United States and India, and then formulate a plan to effectively integrate this product from a global and social standpoint. Speculate on the major challenges and opportunities you anticipate facing in this role. Provide a reference source.
You have been appointed as the Finance Manager of Shangpuri Hotel Bhd. As a finance manager,...
You have been appointed as the Finance Manager of Shangpuri Hotel Bhd. As a finance manager, you are evaluating Project PJ10B, an investment project, and TWO (2) other additional projects namely Project Bee and Project Cee. You are required to deliver a comprehensive report explaining the application of numerous financial practices for valuing investment projects for the board of directors’ strategic decision. Your finance department has forecasted cash flows to assess the viability of Project PJ10B, Project Bee, and Project...
You have been appointed as the Finance Manager of Shangpuri Hotel Bhd. As a finance manager,...
You have been appointed as the Finance Manager of Shangpuri Hotel Bhd. As a finance manager, you are evaluating Project PJ10B, an investment project, and TWO (2) other additional projects namely Project Bee and Project Cee. You are required to deliver a comprehensive report explaining the application of numerous financial practices for valuing investment projects for the board of directors’ strategic decision. Your finance department has forecasted cash flows to assess the viability of Project PJ10B, Project Bee, and Project...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT