Murphy & sons is a company that has contracts to repair pavements for a number of London Boroughs. Demand for its services is constant throughout the year. It uses 48,000 paving slabs each year. The cost of placing an order for paving slabs is £75 and the holding cost per unit of inventory is 45p pa. Suppliers are very reliable and no buffer stock is kept. Required: Calculate i) the batch size at which inventory costs will be minimised; ii) the number of orders that will be placed each year; and iii) the total inventory costs per annum. Critically discuss the limitations of the Economic Order Quantity model as a way of managing stock.

Murphy & sons is a company that has contracts to repair pavements for a number of London Boroughs. Demand for its services is constant throughout the year. It uses 48,000 paving slabs each year. The cost of placing an order for paving slabs is £75 and the holding cost per unit of inventory is 45p pa. Suppliers are very reliable and no buffer stock is kept. Required: Calculate i) the batch size at which inventory costs will be minimised; ii) the number of orders that will be placed each year; and iii) the total inventory costs per annum. Critically discuss the limitations of the Economic Order Quantity model as a way of managing stock.

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Chapter16: Lean Supply Chain Management

Section: Chapter Questions

Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...

See similar textbooks

Similar questions

Sells 360,000 tennis balls per year. The tennis balls cost Dennis Sport World RM15 per dozen. Annual inventory carrying costs are 20% of inventory price. The cost of placing and receiving an order are RM72. Assuming the inventory replenishment occurs virtually instantaneously. Based on recent experience, Dennis Sport World uses 7 days delivery time for planning purposes. (Assume 360 days in a year) a) Calculation of the Economic Order Quantity? b) Calculation of the number of orders to be placed? c) Calculation of the total annual inventory costs? d) Determination of the reorder point?
Ross White’s machine shop uses 2500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or 10% of the unit cost) and the ordering cost per order is $18.75. There are 300 working days per year. A. What is the reorder policy? B. What are the total annual holding and ordering costs associated with your recommended EOQ? C. What is the total annual cost associated with your recommended EOQ?
Emery Pharmaceutical uses an unstable chemical compound that must be kept in an environment where both temperature and humidity can be controlled. Emery uses 200 pounds per month of the chemical, estimates the holding cost to be £3.33 (because of spoilage), and estimates order costs to be £10 per order. What quantity should be ordered, and which supplier should be used? Discuss factor(s) should be considered besides total cost.
A microbrewery purchases malt for production. The supplier charges $35 for delivery (no matter how much is delivered) and $1.20 per gallon. Annual holding cost is 35% of the price per gallon. Usage is 250 gallons/week. d) If order quantity is 2500 gallons, what is the sum of the ordering and holding costs PER GALLON? e) If orders are for EOQ amount, what is the annual cost of the inventory system as a percentage of the annual purchase cost?
Mama Mia’s Pizza purchases its pizza delivery boxes from a printing supplier. Mama Mia’s delivers on-average 225 pizzas each month (assume deterministic demand). Boxes cost 43 cents each, and each order costs $12.50 to process. Because of limited storage space, the manager wants to charge inventory holding at 25 percent of the cost. The lead time is seven days, and the restaurant is open 360 days per year, assuming 30 days per month. Determine the economic order quantity, reorder point assuming no safety stock, number of orders per year, and total annual cost. Plot the cost curves and highlight the EOQ.
A large law firm uses an average of 40 boxes of copier paper a day. The firm operates 260 days ayear. Storage and handling costs for the paper are $30 a year per box, and it costs approximately$60 to order and receive a shipment of paper. a. What order size would minimize the sum of annual ordering and carrying costs?b. Compute the total annual cost using your order size from part a.c. Except for rounding, are annual ordering and carrying costs always equal at the EOQ?d. The office manager is currently using an order size of 200 boxes. The partners of the firmexpect the office to be managed “in a cost-efficient manner.” Would you recommend that theoffice manager use the optimal order size instead of 200 boxes? Justify your answer.
A large law firm uses an average of 40 boxes of copier paper a day. The firm operates 260 days ayear. Storage and handling costs for the paper are $30 a year per box, and it costs approximately$60 to order and receive a shipment of paper.a. What order size would minimize the sum of annual ordering and carrying costs?b. Compute the total annual cost using your order size from part a.c. Except for rounding, are annual ordering and carrying costs always equal at the EOQ?d. The office manager is currently using an order size of 200 boxes. The partners of the firmexpect the office to be managed “in a cost-efficient manner.” Would you recommend that theoffice manager use the optimal order size instead of 200 boxes? Justify your answer.
Suppose that the R&B Beverage Company has a soft drink product that shows a constant annual demand rate of 3,800 cases. A case of the soft drink costs R&B $3. Ordering costs are $20 per order and holding costs are 25% of the value of the inventory. R&B has 250 working days per year, and the lead time is 5 days. Identify the following aspects of the inventory policy. a. economic order quantity (round your answer to the nearest integer.) _____450_______ b. reorder point ______76______ c. cycle time (in days) (round your answer to two decimal places.) ______29.61______ d. total annual cost (in $) (round your answer to two decimal places.) _____?_______ ***I am asking the question with the ? symbol. I have been able to locate the numbers for the first three but I am having issues computing my answers for the last one.
A local supermarket sells a popular brand of shampoo at a fairly steady rate of 380 bottles per month. The cost of each bottle to the supermarket is 45 cents, and the cost ofplacing an order has been estimated at $8.50. Assume that holding costs are based ona 25 percent annual interest rate. Stock-outs of the shampoo are not allowed.b. If the procurement lead time is two months, find the reorder point based on the onhand inventory
My Kitchen Delights (MKD), a regional producer ofgourmet jams and jellies, uses approximately 24,000 glass jarseach month during its production. Because of space limitations,MKD orders 5000 jars at a time. Monthly holding cost is $0.08 perjar, and the ordering cost is $60 per order. Th e company operates20 days per month.(a) What penalty cost is the company incurring by its presentreplenishment policy?(b) MKD would prefer to order eight times each month butneeds to justify any change in order size. How muchwould ordering cost need to be reduced to justify a lot sizeof 3000 jars?(c) If MKD can reduce its ordering cost to $30, what is theoptimal replenishment order quantity?
3. Petromax Enterprises uses a continuous review inventory control system for one of its SKUs. The following information is available on the item. The firm operates 48 weeks in a year. Refer to the table for z-values. ≻Demand = 91,000 units/year ≻Ordering cost = $38.50/order ≻Holding cost = $4.50/unit/year ≻Average lead time = 9 weeks ≻Standard deviation of weekly demand = 120 units a. The economic order quantity for this item is _____ units. (Enter your response rounded to the nearest whole number.) b. If Petromax wants to provide a 90% service level, the safety stock is _____ units (enter your response rounded to the nearest whole number) and the reorder point is ____units (enter your response rounded to the nearest whole number).
Assume that Palmer Executive Pens uses 1,440,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $125 per order. The firm’s carrying cost is 20 percent of the inventory value, at cost. How much is the holding cost? * How many number of orders are there in a year? *