Presentation on theme: "Assignment Ch12a.1 Problem 1: A toy manufacturer uses approximately 32000 silicon chips annually. The Chips are used at a steady rate during the 240 days."— Presentation transcript:
1 Assignment Ch12a.1Problem 1: A toy manufacturer uses approximately silicon chips annually. The Chips are used at a steady rate during the 240 days a year that the plant operates. Annual holding cost is 60 cents per chip, and ordering cost is $24. Determinea) How much should we order each time to minimize our total costb) How many times should we orderc) what is the length of an order cycled) What is the total cost
2 What is the Optimal Order Quantity D = 32000, H = .6, S = 24
3 How many times should we order Annual demand for a product is 32000D = 32000Economic Order Quantity is 1600EOQ = 1600Each time we order EOQHow many times should we order ?D/EOQ32000/1600 = 20
4 what is the length of an order cycle working days = 240/year32000 is required for 240 days1600 is enough for how many days?(1600/32000)(240) = 12 days
5 What is the Optimal Total Cost The total cost of any policy is computed asThe economic order quantity is 1600This is the total cost of the optimal policy
6 Assignment Ch12a.2Victor sells a line of upscale evening dresses in his boutique. He charges $300 per dress, and sales average 30 dresses per week. Currently, Vector orders 10 week supply at a time from the manufacturer. He pays $150 per dress, and it takes two weeks to receive each delivery. Victor estimates his administrative cost of placing each order at 225. His inventory charring cost including cost of capital, storage, and obsolescence is 20% of the purchasing cost. Assume 52 weeks per year.
7 Assignment Ch12a.2Compute Vector’s total annual cost of inventory system (carrying plus ordering but excluding purchasing) under the current ordering policy?Without any EOQ computation, is this the optimal policy? Why?Compute Vector’s total annual cost of inventory system (carrying plus ordering but excluding purchasing) under the optimal ordering policy?What is the ordering interval under optimal ordering policy?What is average inventory and inventory turns under optimal ordering policy? Inventory turn = Demand divided by average inventory. Average inventory = Max Inventory divided by 2. Average inventory is the same as cycle inventory.
8 Number of orders/yr = D/Q = 1560/300 = 5.2 Current PolicyProblem 6.3flow unit = one dressflow rate d = 30 units/wkpurchase cost C = $150/unitfixed order cost S = $225H = 20% of unit cost.order lead time L = 2 weeksOrders ten weeks supplyQ = 10(30) = 300 units.52 weeks per yearAnnual demand = 30(52) = 1560Number of orders/yr = D/Q = 1560/300 = 5.2(D/Q) S = 5.2(225) = 1,170/yr.Average inventory = Q/2 = 300/2 = 150H = rC = .2*150 = 30Annual holding cost = H (Q/2) = 30(150) = 4,500 /yr.Without any computation, is this the optimal policy?Why?Without any computation, is EOQ larger than 300 or smallerWhyTotal annual costs = = 5670
9 Optimal PolicyQ* = EOQ == 153 units.An order for 153 units two weeks before he expects to run out.That is, whenever current inventory drops to30 units/wk * 2 wks = 60 unitswhich is the re-order point.His annual cost will be4,589
11 Assignment Ch12a.3Complete Computer (CC) is a retailer of computer equipment in Minneapolis with four retail outlets. Currently each outlet manages its ordering independently. Demand at each retail outlet averages 4,000 per week. Each unit of product costs $200, and CC has a holding cost of 20% per annum. The fixed cost of each order (administrative plus transportation) is $900. Assume 50 weeks per year. The holding cost will be the same in both decentralized and centralized ordering systems. The ordering cost in the centralized ordering is twice of the decentralized ordering system.
12 Assignment Ch12a.3Decentralized ordering: If each outlet orders individually.Centralized ordering: If all outlets order together as a single order.Compute EOQ in decentralized orderingCompute the cycle inventory for one outlet and for all outlets.Compute EOQ in the centralized orderingCompute the cycle inventory for all outlets and for one outletCompute the total holding cost + ordering cost (not including purchasing cost) for the decentralized policyCompute the total holding cost plus ordering cost for the centralized policy
13 With a cycle inventory of 1500 units for each outlet. Decentralized PolicyFour outletsEach outlet demandD = 4000(50) = 200,000S= 900C = 200H = .2(200) = 40If all outlets order together in a centralized ordering, then S= 1800=3000With a cycle inventory of 1500 units for each outlet.The total cycle inventory across all four outlets equals 6000 units.With centralization of purchasing the fixed order cost is S = $1800.=8485and a cycle inventory of units.
14 Total holding and ordering costs under the two policies DecentralizedDecentralized: TC for all four warehouses = 4(120000)=480000Centralizedcompared to about 30% improvement