Operations Management

Operations Management Question

Q uestion

Demand and EOQ

Description:

For an item, the embedded Excel spreadsheet contains sales forecast data for two products for the upcoming 12 months.

Assume that both products are purchased from a supplier, and there is a $200 transaction cost for each order. This cost is the same for either product. Holding cost for inventory of the item is dependent on the value of the product and it is estimated to 5% of the unit cost for Product A and 1% of the unit cost for Product B. The full-price paid to the supplier is $53/unit for Product A and $2/unit for Product B. In other words, Product B is a much cheaper product than Product A. Assume that demand for the products occur steadily throughout the year but the monthly forecasts in the embedded spreadsheet show the level of expected sales in a month. The average lead time of supply, counted as the time between when an order is placed to the supplier to the time when the company receives the order, is 6 days. Assume that the lead time is the same for both products. The two products under consideration could be an A-category item or a C-category item. Your task is to formulate an inventory policy for the two products with respect to order quantities, reorder level, safety stock and order interval. As part of this analysis, your decision needs to incorporate the type of inventory system that you plan to operate for each product.

Would your decisions above change if there is a 2% discount provided by the supplier on the price of the products any time the order size exceeds 5,000 units? If so, what will be the changes?

(Make any other assumptions you may need to arrive at the decisions. State the assumptions clearly. Also, any conclusions you derive for the above decisions need to be supported by the appropriate analysis/calculations).

Product A

January

February

March

April

May

June

July

August

September

October

November

December

Sales

850

884

2089

1650

1194

197

807

853

467

1384

552

697

Seasonality Index

0.88

0.91

2.16

1.70

1.23

0.20

0.83

0.88

0.48

1.43

0.57

0.72

Average Demand

968.67

StdDev       Demand

530.69

Coefficient of Variation

54.79%

 

 

 

Max Seasonal Index

2.16

Min Seasonal Index

0.20

 

 

 

 

 

 

 

 

 

 

 

 

 

Product B

January

February

March

April

May

June

July

August

September

October

November

December

Sales

3000

2800

2920

2100

2850

2800

2950

2800

2900

2900

2950

3200

Seasonality Index

1.05

0.98

1.03

0.74

1.00

0.98

1.04

0.98

1.02

1.02

1.04

1.12

Average Demand

2847.50

StdDevDemand

260.21

Coefficient of Variation

9.14%

 

 

 

Max Seasonal Index

1.12

Min Seasonal Index

0.74

 



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  • A nswer

    Operations Management

    Submitted by PROFSTAN on April 26th, 2016 17:54

    Price $40.00

    Rated 11 times.

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