You are the company’s Supply Chain Manager — solve the below questions to ensure an optimal ordering policy.
Annual requirements (R) = 16,242 units Place EOQ graph here….
Order cost (S) = $68.00 per order
Holding rate (k) = 28.0% annually
Unit cost (C) = $52.87 per unit
Lead time (LT) = 4 days
Number of days per year = 365 days
Compute the following:
Note: You must include formulas for full credit — do NOT simply type in answers. Add additional cells if necessary, but label each clearly!
a) EOQ = units
EOQ (rounded to nearest whole item) units
b) total purchase cost =
c) annual holding cost =
d) annual order cost =
e) total annual logistics cost = (without purchase cost)
f) reorder point units (note: no variability in demand or lead-time in this situation)
g) number of orders placed per year = orders
h) time between orders = days
i) plot cost curves — holding cost, order cost and total cost. Use the layout below the questions, if needed.
j) If you are required to order by the whole case, at 20-per case, what Q would you recommend? units
k) What is the new Total Annual Logistics Cost of the Whole-Case Q? (suggestion — you can compute here, or just change your Q above where your EOQ is and see the resulting costs — don’t forget to undo this change to put EOQ back!)
l) What is the difference in Total Annual Logistics Cost of EOQ and that of the Whole-Case Q?
m) Given your answer to K above, what does this say about the EOQ Formula?
n) Your CEO just announced that inventory levels must be cut by 10% in order to reduce costs (based on original EOQ). What would your new Q need to be? units
o) Based on your new Q from above, you will actually raising costs unless you can change S too. What would your new S need to be?
p) How much must S be reduced from the current cost-per order to reach your new goal?
q) List 3 specific ways in which you can lower S in order to reach your goal? 1)
Q Annual Holding Cost Annual Ordering Cost Total Cost