Question

A project is meant to be a practical exercise that tests the knowledge and skills you have acquired from the book in a problem setting that resembles the real world more closely than a text book exercise. It is naturally more elaborate than any text book exercise and takes a little more time to do than a homework exercise. The recommended practice is to read and understand the description of the problem, and this may require reading the relevant sections of the text book perhaps more than once. The next step is to work out a plan to solve the problem in a way that provides you complete answers to the questions that accompany the problem description. When all of the analysis and planning is done, it is time to solve the problem. In the real world, work needed to solve a problem is never done with a calculator on paper. It is always done using spreadsheets for the calculation. Here also the work should be done on Excel spreadsheets. It saves time to do it this way. The only acceptable submission on Blackboard will be an Excel spreadsheet which includes text giving brief answers to the questions. A Word document with skimpy calculations is not acceptable, however much detail there might be in the answers to the questions. The key to the project is the answer to Question 1, and this is all calculation. Once you have the answers to Question 1, you will also have the answers to the other questions. These two have no calculation at all but may require some additional reading of the relevant chapters in the book. The next steps describe how to solve the problem and answer Question 1. Question 1: A quick reading of the problem indicates that the main question is about inventory and inventory management. Inventory Management is Chapter 13 in the text book. If it has been a while since you read that chapter, it may be a good idea to go back and glance at the chapter again. Specifically the question is about the optimal policy for ordering and inventory, which translates into calculating the optimal order quantities. The book describes three inventory models, respectively Economic Order Quantity, Economic Production Quantity, and Quantity Discount. When you look at the given data and the price discounts that go with different order volumes, the problem has a clear fit with the Quantity Discount model and no other. Refer again to the book. The Quantity Discount model requires you to calculate the total cost for each order policy using the formula below: TC = P*D + (Q/2)*H + (D/Q)*S The Purchase Price (P) varies according to the order quantity Q, and Holding Cost (H) is expressed as a fraction of the Purchase Price. The first step is to calculate the Order Quantity Q for each discount level, or each purchase price bracket. This is done by using the basic EOQ formula (refer to book). Please do not be confused by the word “infeasible” in the book. All that it means is that you cannot get the discount if the order quantity is less than the threshold for the discount. You must bump the Order Quantity up to the minimum level required to get the discounted price, and then calculate total cost using this Order Quantity. In the end, you will have a Total Cost for each discount price for each supplier. The best (lowest) Total Cost will be the best policy to use. Questions 2 and 3:. The answer to these two questions is a combination of the stockout part of Chapter 13 and the concept of Just-in-Time (JIT) systems from the JIT chapter. Stockout is an extremely high cost and any stockout situation must be avoided even if it means choosing a higher cost option in Question 1. You should consider here that the two suppliers have very different supply chains and different stockout probabilities. The JIT issue is woven into the supply chain. In a JIT environment the supplier works on an annual contract worked out at the best costs and order volumes consistent with annual demand, but makes shipments frequently in small lots. The lots are shipped so often that the chance of a stockout becomes small. This is a most desirable option and it would appear that one of the two suppliers is better suited to use JIT. The JIT shipment changes all the Holding and Ordereing costs but you are not required to do any of these calculations.

Answer 1

INVENTORY

INVENTORY MANAGEMENT

EOQ MODEL

EXAMPLE

QUANTITY DISCOUNT MODEL

EXAMPLE ( Practical implication)

solution

STOCKOUT

this situation occur when demand exceed supply. we can estimate the stock out risk and clearly implement JIT

JIT

example- TOYOTA