EOQ Assignment

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)

2)

3)

Q Annual Holding Cost Annual Ordering Cost Total Cost

50

75

100

125

150

175

200

225

250

275

300

325

350

375

400

425

450

475

500

525

550

575

600

625

650

675

700

725

750

775

800

825

850

875

900