Supply Chain Management :Last Home Work: ( 5 Points)

Q.N.1. The XYZ Company has an assembly plant in Cincinnati and its parts plant in
Indianapolis. Parts are transported from Indianapolis to Cincinnati using trucks. Each shipment
costs $100. The Cincinnati plant assembles and sells 300 finished products each day and
operates 50 weeks a year. Part #456 costs $50 and XYZ Company incurs a holding cost of 20
percent per year. How many of part #456 should XYZ Company put in each shipment? What is
the cycle inventory of part #456 at XYZ Company?

Q.N.2. Tastee Mart sells Frostee Flakes. Demand for Frostee Flakes is 500 boxes per week.
Tastee Mart has a holding cost of 30 percent and incurs a fixed cost of $100 for each
replenishment order it places for Frostee Flakes. Given that cost is $2 per box of Frostee
Flakes, how much should Tastee Mart order in each replenishment lot? If a trade promotion
lowers the price of Frostee Flakes to $1.80 for a month, how much should Tastee Mart order
given the short-term price reduction?

Q.N.3. Harley Davidson has its engine assembly plant in Milwaukee and its motorcycle
assembly plant in Pennsylvania. Engines are transported between the two plants using trucks.
Each truck trip costs $1,000. The motorcycle plant assembles and sells 300 motorcycles each
day. Each engine costs $500 and Harley incurs a holding cost of 20 percent per year. How
many engines should Harley load onto each truck? What is the cycle inventory of engines at
Harley?

Q.N.4. Harley has decided to implement Just In Time (JIT) at the motorcycle assembly plant. As
part of this initiative it has reduced the number of engines loaded on each truck to 100. If each
truck trip still costs $1,000, how does this decision impact annual costs at Harley? What should
the cost of each truck be if a load of 100 engines is to be optimal for Harley?

Q.N.5. Prefab, a furniture manufacturer, uses 20,000 square feet of plywood per month. The
trucking company charges Prefab $400 per shipment independent of the quantity purchased. The
manufacturer offers an all unit quantity discount with a price of $1 per square foot for orders
under 5000 square feet, $ 0.98 per square foot for orders between 5000 and 10000 square feet,
and $0.96 per square foot for orders larger than 10,000 square feet. Prefab incurs a holding cost
of 20 percent. What is the optimal lot size for prefab? What is the annual cost of such a policy?
What is the cycle inventory of plywood at prefab? How does it compare with the cycle inventory
if the manufacturer did not offer a quantity discount but sold all plywood at $ 0.96 per square
foot?
Q.1. Answer: Q* = 2DS/hC
= (2(300 x 50 x 5)$100)/(.2 x $50)
= 1224.745  1225
Average cycle inventory = Q*/2, = 1225/2, = 612.5
Q.N.2. Tastee Mart sells Frostee Flakes. Demand for Frostee Flakes is 500 boxes per week. Tastee Mart
has a holding cost of 30 percent and incurs a fixed cost of $100 for each replenishment order it places for
Frostee Flakes. Given that cost is $2 per box of Frostee Flakes, how much should Tastee Mart order in
each replenishment lot? If a trade promotion lowers the price of Frostee Flakes to $1.80 for a month, how
much should Tastee Mart order given the short-term price reduction?
Answer: Q* = 2DS/hC
= (2(500 x 52)$100)/(.3 x 2)
= 2943.92  2944
d
Q = (dD)/(C – d)h + CQ*/(C – d)
= (.2 x 26,000)/(2 - .2).3 + (2 x 2944)/(2 - .2)
= 12,900.74  12,901
Forward buy = Qd - Q*
= 12,901 – 2944
= 9,957
Q.N.4.Part I
Inputs
Demand, R = 109,500 (assuming 365 operating days)
Fixed cost per order, S= $ 1,000
Cost per engine, C = $ 500
Holding cost, h= 20%
Order quantity 100
Outputs
# of orders per year 1,095
Annual Order Cost 1,095,000
Cycle inventory (units) 50
Annual Holding Cost $ 5,000
Total Inventory Cost $ 1,100,000
Part II
Inputs
Demand, R = 109,500 (assuming 365 operating days)
Fixed cost per order, S= $ 1,000
Cost per engine, C = $ 500
Holding cost, h= 20%
EOQ 100
Outputs
Fixed cost per order, S= $ 4.57
# of orders per year 1,095
Annual Order Cost 5,000
Cycle inventory (units) 50
Annual Holding Cost $ 5,000
Total Inventory Cost $ 10,000