Tutorial 11

1. A large bakery buys flour in 25-kg bags. The bakery uses an average of 4860 bags a year. Preparing an order and receiving a shipment of flour involves a cost of $10 per order. Annual carrying costs are $75 per bag.

a) Determine the economic order quantity. b) How many orders per year will there be? c) Compute the total cost of ordering and carrying flour

2. A mail-order house uses 18,000 boxes a year. Carrying costs are 60 cents per box a year, and ordering costs are $96. The following price schedule applies. Determine

a) The optimal order quantity b) The number of orders per year

Number of Boxes 1000-1999 2000-4999 5000-9999 10000 or more

Price per Box 1.25 1.20 1.15 1.10

3. A company will begin stocking remote control devices. Expected monthly demand is 800 units. The controller can be purchased from either supplier A or B. Their price lists are as follows: Quantity purchased Supplier 1 1-199 200-499 500 and above Supplier 2 1-149 150-349 350 and above 14.10 13.90 13.70 14.00 13.80 13.60 Unit price

Ordering cost is $40 and annual holding cost is 3.00 per unit. Which supplier should be used and what order quantity is optimal if the intent is to minimize total annual costs?

4. Explain the differences of JIT/lean operations as compared to traditional approach in terms of: 1. 2. 3. 4. 5. Inventory storage Quality Product design Supplier relationships Personnel/organizational structure