The SAR company distributes a wide range of electrical products. One of its best selling itemis a standard electric motor. The purchasing cost of each electric motor is $100. Themanagement of the SAR company uses the Economic Order Quantity (EOQ) decision modelto determine the optimal number of motors to order. Management now wants to determinehow much safety stock to hold.Moreover, the SAR company estimates annual demand (320 days to be 64,000 motors). Thelead time for an order is 1 week. The annual holding cost of one motor is $15. The orderingcost is $6,400 per purchase order. Management has to estimate that the additional stock-outcost is $30 for each motor they are short. Moreover, the company has a minimum requiredreturn on investment of around 5%.The SAR company has analyzed the demand during 100 past reorder periods. The recordsindicate the following patternDemand (units) during lead time Number of times quantity was demanded12001013001514005015002016005 1.Determine the optimal level of safety stock that the company should maintain. Brieflyexplain the reasons of your calculations (use 100 units as each safety stock increments).2.If the company changes to use Just in Time (JIT) system, what are the implications on theanswer in part (1)? Discuss

Purchasing cost (C)= $100 per motor Annual demand (D)= 64000 units Annual holding cost (H)= $15…

Answered: The SAR company distributes a wide…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter10: Introduction To Simulation Modeling

Section10.4: Simulation With Built-in Excel Tools

Problem 13P

See similar textbooks

Similar questions

The lead time demand for bathing suits is governed bythe discrete random variable shown in Table 11. Thecompany sells an average of 10,400 suits per year. The costof placing an order for bathing suits is $30, and the cost ofholding one bathing suit in inventory for a year is $3. Thestockout cost is $3 per bathing suit. Use marginal analysisto determine the optimal order quantity and the reorderpoint.Lead TimeDemand Probability180 .30190 .30200 .15210 .10220 .15
The demand for a clothing brand is shown in the table below. The cost per order is about $4000. Cost of each unit of clothing = $5. Carrying cost percentage = 25% per item per 5 months. The analysis period = 5 month duration. Month Demand 1 400 2 300 3 200 4 400 5 500 a. Using this data, compute the solutions using the Lot for Lot and Periodic Order Quantity heuristics? Which of these heuristics would perform better and why? b. Assuming that the demand follows a normal distribution with the mean and variance from the data given above, determine the optimal order should be greater or lesser than the single period EOQ model.
A component used in a manufacturing facility is ordered from an outside supplier.Because the component is used in a variety of end products, the demand is high. Estimated demand (in thousands) over the next 10 weeks isWeek 1 2 3 4 5 6 7 8 9 10Demand 22 34 32 12 8 44 54 16 76 30The components cost 65 cents each and the interest rate used to compute the holding cost is 0.5 percent per week. The fixed order cost is estimated to be $200. (Hint:Express h as the holding cost per thousand units.)d. Which method resulted in the lowest-cost policy for this problem?
A component used in a manufacturing facility is ordered from an outside supplier.Because the component is used in a variety of end products, the demand is high. Estimated demand (in thousands) over the next 10 weeks isWeek 1 2 3 4 5 6 7 8 9 10Demand 22 34 32 12 8 44 54 16 76 30The components cost 65 cents each and the interest rate used to compute the holding cost is 0.5 percent per week. The fixed order cost is estimated to be $200. (Hint:Express h as the holding cost per thousand units.)a. What ordering policy is recommended by the Silver–Meal heuristic?
A component used in a manufacturing facility is ordered from an outside supplier.Because the component is used in a variety of end products, the demand is high. Estimated demand (in thousands) over the next 10 weeks isWeek 1 2 3 4 5 6 7 8 9 10Demand 22 34 32 12 8 44 54 16 76 30The components cost 65 cents each and the interest rate used to compute the holding cost is 0.5 percent per week. The fixed order cost is estimated to be $200. (Hint:Express h as the holding cost per thousand units.)c. What ordering policy is recommended by the least unit cost heuristic?
A component used in a manufacturing facility is ordered from an outside supplier.Because the component is used in a variety of end products, the demand is high. Estimated demand (in thousands) over the next 10 weeks isWeek 1 2 3 4 5 6 7 8 9 10Demand 22 34 32 12 8 44 54 16 76 30The components cost 65 cents each and the interest rate used to compute the holding cost is 0.5 percent per week. The fixed order cost is estimated to be $200. (Hint:Express h as the holding cost per thousand units.)b. What ordering policy is recommended by the part period balancing heuristic?
EOQ formula gives the order quantity that minimizes the total ordering and inventory holding cost. Although it may be thought that the simplifying assumptions of the EOQ model limits the applicability of this concept to a variety of cases, in practice, it provides satisfactory results. The reason for this is the robustness of the total cost function with respect to the choice of Q. In other words, if another order quantity is used instead of the optimal one, the overall effect of this choice on the total cost function is not that much. The objective of this question is to investigate the robustness of EOQ. The purchase price of an electronic component is $100 per unit. The holding cost is calculated directly from the opportunity cost of the money tied up according to a market interest rate of 10% per year. The annual demand is 6000 units per year and the ordering cost is $12 per order. a- What is the optimal order quantity and the optimal total ordering and holding cost? b.If the order…
Rocky Mountain Tire Centre sells 20,000 tires of a particular type per year. The ordering cost for each order is $40, and the holding cost is 20% of the purchase price of the tires per year. The purchase price is $20. per tire if fewer than 500 tires are ordered, $18. Per tire if more than 500 but fewer than 1,000 tires are ordered and $17. per tire if 1,000 or more tires are ordered. Quantity Unit Price 1-499 $20. 500-999 $18. 1000 & over $17 Based on available information, lead time demand for CD-ROM drives averages 50 units (normally distributed), with a standard deviation of 5 drives. Management wants a 97% service level. What value of Z should be applied? How many drives should be carried as safety stock?
The office manager for the Metro Life Insurance Companyorders letterhead stationery from an office products firm inboxes of 500 sheets. The company uses 6500 boxes peryear. Annual carrying costs are $3 per box, and orderingcosts are $28. The following discount price schedule isprovided by the office supply company: Order Quantity (boxes) Price per Box200–999 $161000–2999 143000–5999 136000 12 Determine the optimal order quantity and the total annualinventory cost.
A Mercedes dealer must pay $20,000 for each carpurchased. The annual holding cost is estimated to be 25%of the dollar value of inventory. The dealer sells an averageof 500 cars per year. He believes that demand is backloggedbut estimates that if he is short one car for one year he willlose $20,000 worth of future profits. Each time the dealerplaces an order for cars, ordering cost amounts to $10,000.Determine the Mercedes dealer’s optimal ordering policy.What is the maximum shortage that will occur?
Demand each period is normally distributed and an order-up-to model is used to decideorder quantities. Which of the following influences the chosen order-up-to level (i.e., achange in which of the following would change the chosen order-up-to level)? I. The mean of demand in one periodII. The standard deviation of demand over (L + 1) periodsIII. The target in-stock probabilitya. Only Ib. Only IIc. Only IIId. I and IIe. I and IIIf. II and IIIg. I, II, and III
Open the A2 Liquor Company Excel file. Make the following changes: The profit for beer has increased to $6 per ton and its demand has increased to 5 tons per week. What is the profit under the optimal product mix? 14 12 18 16 Which of the following is an assumption of the basic fixed-order-quantity inventory model (for example, EOQ)? Ordering costs are variable. Lead times are constant. Lead times are unknown. Back-orders are allowed

SEE MORE QUESTIONS

Recommended textbooks for you

Practical Management Science

Operations Management

ISBN:

9781337406659

Author:

WINSTON, Wayne L.

Publisher:

Cengage,

Practical Management Science

Operations Management

ISBN:

9781337406659

Author:

WINSTON, Wayne L.

Publisher:

Cengage,

SEE MORE TEXTBOOKS