CarCity is a big retailer for car parts and accessories. The store stocks different types and sizes of car tire. One of the best selling tires is the Tiger Model R125, which is currently purchased from a factory in Indonesia. An analysis of the purchasing operation shows that approximately 2 labor hours are required to process a purchase order, regardless of the quantity purchased. Salaries in the purchasing Department average OMR 15 per hour, including employee benefits. In addition, a detailed analysis of 20 previous purchase orders showed that OMR 132 was spent on telephone, paper, and other consumables directly related to the ordering process (see guidelines above to obtain value of 132). Shipping cost from Indonesia is OMR 250 for a container. A container has a capacity of 800 tires. The lead time for shipments from Indonesia is 15 days. Finally, CarCity’s financial analysts established a holding cost of 30% for this type of tire. The annual demand for the R125 tire is constant at a rate of 8400 units. The store purchases the tires from the Indonesian factory at a cost of 12 OMR per unit. The current practice at CarCity is to place one re-stock order each month. The store operates 350 days per year. Part A 1. What is the ordering cost? 2. What is the current annual total inventory cost under the company’s current policy? 3. Determine the optimal order quantity. 4. How much safety stock is recommended for the company to carry? Justify your answer. 5. What reorder point should be used? 6. State the optimal inventory policy. 7. What is the total annual inventory cost under the optimal inventory policy, and how much savings does the Company achieve by implementing the optimal policy? 8. The store management has decided to allow back orders. What would be the optimal inventory policy if back ordering is acceptable, and how much would CarCity save in total cost? Backordering costs are 45%. 9. CarCity is considering moving their business to a different supplier in Indonesia. This new supplier offers the following pricing schedule for the tires. Quantity Price per unit (OMR) 0 - 100 12.25 101 - 200 12.00 201 - 500 11.75 More than 501 11.50 Should CarCity switch to the new supplier? Justify your answer.
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
CarCity is a big retailer for car parts and accessories. The store stocks different types and sizes of car tire. One of the best selling tires is the Tiger Model R125, which is currently purchased from a factory in Indonesia. An analysis of the purchasing operation shows that approximately 2 labor hours are required to process a purchase order, regardless of the quantity purchased. Salaries in the purchasing Department average OMR 15 per hour, including employee benefits. In addition, a detailed analysis of 20 previous purchase orders showed that OMR 132 was spent on telephone, paper, and other consumables directly related to the ordering process (see guidelines above to obtain value of 132). Shipping cost from Indonesia is OMR 250 for a container. A container has a capacity of 800 tires. The lead time for shipments from Indonesia is 15 days. Finally, CarCity’s financial analysts established a holding cost of 30% for this type of tire.
The annual demand for the R125 tire is constant at a rate of 8400 units. The store purchases the tires from the Indonesian factory at a cost of 12 OMR per unit. The current practice at CarCity is to place one re-stock order each month. The store operates 350 days per year.
Part A
1. What is the ordering cost?
2. What is the current annual total inventory cost under the company’s current policy?
3. Determine the optimal order quantity.
4. How much safety stock is recommended for the company to carry? Justify your answer.
5. What reorder point should be used?
6. State the optimal inventory policy.
7. What is the total annual inventory cost under the optimal inventory policy, and how much savings does the Company achieve by implementing the optimal policy?
8. The store management has decided to allow back orders. What would be the optimal inventory policy if back ordering is acceptable, and how much would CarCity save in total cost? Backordering costs are 45%.
9. CarCity is considering moving their business to a different supplier in Indonesia. This new supplier offers the following pricing
Quantity Price per unit (OMR)
0 - 100 12.25
101 - 200 12.00
201 - 500 11.75
More than 501 11.50
Should CarCity switch to the new supplier? Justify your answer.
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