A manager of an inventory system has been asked to analyze the economics of a backorder policy for some products that can possibly be backordered. For a specific product with Demand of 3600 units per year, ordering costs equals $250, holding cost equals $3, and backorder costs equal $45.
Show your work calculating the following using the inventory backorder model:
1/Optimal Order
2/Planned Shortage
3/Total Cost
1.
EOQ with backorder
EOQ = Sqrt(((2*D*Co)/Ch)*(( Ch +Cb)/Cb)) where,
D = Annual demand = 3600
Co = ordering cost per order = $250
Ch = holding cost per unit per year = $3
Cb = backorder cost per unit = $45
EOQ = SQRT(((2*3600*250)/3)*((3+45)/45)) = 800
2.Planned shortage = EOQ calculated in shortage model*(Ch/(Ch+Cb)) = 800*(3/(3+45)) = 50 = B
3.Total cost = Annual carrying cost+Annual ordering cost+Annual
backordering cost
Annual carrying cost = ((EOQ-B)^2/(2*EOQ))*Ch =
((800-50)^2/(2*800))*3 =1054.6875
Annual ordering cost = (D/EOQ)*Co = (3600/800)*250 = 1125
Annual backordering cost = (B^2/(2*EOQ))*Cb = (50^2/(2*800))*45 = 70.3125
Total cost = 1054.6875+1125+70.3125 = 2250
A manager of an inventory system has been asked to analyze the economics of a backorder...
What is also an ideal response to this discussion? In order to have an effective inventory management system, an organization needs to start off with a good system that can keep track of inventory on hand and on order. One must first know what they have. Something like a universal product code (UPS), which is a bar code printed on all labels and contains information about the item, helps keep track of inventory and gives all managers needed information. It's...
A5: Packing Crate Inventory MGT305 You’ve recently been hired as a project manager at a distributor of fruits and vegetables located in Northern Kentucky. An operations manager has asked for your help in analyzing current inventory policies related to packing crates. She’s looking for a lower cost policy. Currently, the operation buys crates from a regional supplier. The operation uses 1800 crates each month. Annual carrying cost is 18% of the $6 acquisition cost per crate. Each order costs approximately...
Problem 6. Find the optimal ordering policy for the stochastic single-period model with a setup cost where the demand has the probability density function (Le-t/25, t20 0, t<0 and the costs are: Holding cost 40 cents per item, Shortage cost $1.50 per item, Purchase price $1 per item, Setup cost $10. Assume pre-existing inventory I on hand. Note that equation for s* will have to be solved numerically Problem 6. Find the optimal ordering policy for the stochastic single-period model...
Problem 5. Find the optimal ordering policy for the stochastic single-period model with a setup cost where the demand has the probability density function fo() = {zo, Osts 20 10, otherwise and the costs are: Holding cost = $1 per item, Shortage cost = $3 per item, Setup cost = $1.50, Production cost = $2 per item. Assume pre-existing inventory I on hand.
Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central inventory operation. Thomas’s fastest moving inventory item has a demand of 6000 units per year. The cost of each unit is $100.00, and the inventory carrying cost is $10.00 per unit per year. The average ordering cost is $30.00 per order. It takes about 5 days for an order to arrive, and demand for 1 week is 120 units (this is a...
Please answer and show all work . Problem 8 Consider the EOQ model with planned shortages as presented in Sec. 18.3 of the textbook. Suppose, however, that the constraint SO -0.8 is added to the model, where O is the order quantity and Sis the inventory level just after a batch of O units is added to inventory. Derive the expression for the optimal value of O, using the result for this model that the total cost per unit time...
A firm has been ordering a certain item 600 units at a time. The firm estimates that ordering cost is $200/order, and that annual demand is 1800 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of holding cost (H: avg $cost of holding one piece for 1 year) would their ordering policy (600 units per order) be economically optimal (be the EOQ)? EOQ = Sq Root[(2D*S)/H] Where: D...
The Florida Mining Company conducts recapitalization (or overhaul) operations on large, heavy mining equipment. Vehicles scheduled for periodic overhaul and repair are brought to the depot and a complete overhaul returns them back to the minim company in a “like new” condition. In order for operations to run smoothly, spare parts must be available so that the production line does not idle. Below is a table of three critical parts used in the overhaul process. The annual holding and backorder...
You are the operations manager of a firm that uses the continuous review inventory control system. Suppose the firm operates 252 days a year and has the following characteristics for its primary item: Demand = 25,000 units/year Ordering cost = $33/order Holding cost = $4/unit/year Lead time = 4 days Standard deviation in daily demand = 3 units What is the total holding cost per year, including annual holding cost for safety stock (to the nearest whole number)? (Service...
QUESTION 1 Florida Mining Equipment Depot conducts recapitalization (or overhaul) operations on large, heavy mining equipment. Vehicles scheduled for periodic overhaul and repair are brought to the depot and a complete overhaul returns them back to the minim company in a "like new" condition. In order for ope smoothly, spare parts must be available so that the production line does not idle. Below is a table of three critical parts used in the overhaul process. The annual holding and backorder...