Question

Harley-Davidson 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 $800. The motorcycle plant assembles and sells 450 motorcycles each day. Each engine costs $600, and Harley incurs a holding cost of 20% per year. Assume that Harley has 365 operating days. a) How many engines should Harley load onto each truck? What is the cycle inventory of engines at Harley? b) What are the annual holding cost and annual ordering cost for the engines at Harley, respectively? c) What is the average flow time (in days, carry two decimal places) for the engines at Harley?

Answer 1

Ordering cost (S) = 800

Holding cost (H) = 0.2*600 = 120

Annual demand (D) = 450*365 = 164250

a)

Optimal order quantity (Q) = sqrt(2DS/H) = sqrt(2*164250*800/120) = 1479.8 or 1480 units of engine

Cycle inventory = Q/2 = 1480/2 = 740 units

b)

Annual holding cost = H*Q/2 = 120*740 = 88800

Annual ordering cost = D*S/Q = 164250*800/1480 = 88783.78

c)

Flow time = Q/2d = 1480/(2*450) = 1.64 days