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supply chain homework

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Apr 30th, 2015

a)

EOQ = Sqrt (2*Annual demand*Ordering cost / Annual carrying cost per unit)

EOQ = Sqrt(2*(1200*12)*40/(20% of 16))

EOQ = 600

ie: Order 600 crates at once instead of 1200 being ordered currently. As monthly demand is 1200, the ordering will have to be done twice instead of once.

b)

Current ordering costs = $40/order * 12 orders/year = $480 / year

Current storage costs = Storing cost/crate * average inventory = (20% of 16) * (1200/2) = $1920 /year

Total current costs = $480 + $1920 = $2400

EOQ ordering costs = $40/order * 24 orders/year = $960 / year

EOQ storage costs = Storing cost/crate * average inventory = (20% of 16) * (600/2) = $960 /year

Total EOQ costs = $960 + $960 = $1920

Annual saving = $2400 - $1920 = $480

c)

Net change in ordering cost = $960 - $480 = $480 (cost goes up)

d)

Net change in storage cost = $960 - $1920 = -$960 (cost reduces)


May 1st, 2015

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