Reflective Journal - Final, Essays (university) of Marketing

Download Reflective Journal - Final and more Essays (university) Marketing in PDF only on Docsity! INVENTORY MANAGEMENT 2 LOT SIZING FOR A SINGLE PRODUCT – THE EOQ MODEL  Economic Order Quantity  Optimal ordering frequency 5 Optimal lot size, Q* = 2DS hC n* = D Q * = DhC 2S Annual demand, D = 1,000 x 12 = 12,000 units Order cost per lot, S = $4,000 Unit cost per computer, C = $500 Holding cost per year as a fraction of unit cost, h = 0.2 Determine (a) EOQ (b) Cycle Inventory (c) No. of order per year (d) Total cost (e) Average flow time What happens if the lot size is reduced to 200? PRODUCTION LOT SIZING – THE EPQ MODEL  The entire lot does not arrive at the same time  Production occurs at a specified rate P  Inventory builds up at a rate of P – D QP = 2DS (1– D / P)hC D QP æ è ç ö ø ÷S Annual setup cost (1– D / P) QP 2 æ è ç ö ø ÷hC Annual holding cost 6 LOT SIZING WITH MULTIPLE PRODUCTS OR CUSTOMERS 1. Each product manager orders his or her model independently 2. The product managers jointly order every product in each lot 3. Product managers order jointly but not every order contains every product; that is, each lot contains a selected subset of the products 7 LOTS ORDERED AND DELIVERED JOINTLY Annual holding cost = D L hC L 2n + D M hC M 2n + D H hC H 2n S* = S + s L + s M + s H Annual order cost = S * n Total annual cost = D L hC L 2n + D M hC M 2n + D H hC H 2n + S * n n* = D L hC L + D M hC M + D H hC H 2S * n* = D i hC ii=1 k å 2S * 10 PRODUCTS ORDERED AND DELIVERED JOINTLY S* = S + s A + s B + s C = $7,000 per order n* = 12,000´100+1,200´100 +120´100 2´ 7,000 = 9.75 Annual order cost = 9.75 x 7,000 = $68,250 Annual ordering and holding cost = $61,512 + $6,151 + $615 + $68,250 = $136,528 11 Litepro Medpro Heavypro Demand per year (D) 12,000 1,200 120 Order frequency (n∗) 9.75/year 9.75/year 9.75/year Optimal order size (D/n∗) 1,230 123 12.3 Cycle inventory 615 61.5 6.15 Annual holding cost $61,512 $6,151 $615 Average flow time 2.67 weeks 2.67 weeks 2.67 weeks 12 PRODUCTS ORDERED AND DELIVERED JOINTLY Litepro Medpro Heavypro Demand per year (D) 12,000 1,200 120 Order frequency (n∗) 11.47/year 5.74/year 2.29/year Optimal order size (D/n∗) 1,046 209 52 Cycle inventory 523 104.5 26 Annual holding cost $52,307 $10,461 $2,615 Average flow time 2.27 weeks 4.53 weeks 11.35 weeks 15 LOTS ORDERED AND DELIVERED JOINTLY FOR A SELECTED SUBSET Annual ordering and holding cost = $130,767 A key to reducing cycle inventory is the reduction of lot size. A key to reducing lot size without increasing costs is reducing the fixed cost associated with each lot. This may be achieved by reducing the fixed cost itself or by aggregating lots across multiple products, customers, or suppliers. When aggregating across multiple products, customers, or suppliers, simple aggregation is effective when product-specific order costs are small, and tailored aggregation is best if product-specific order costs are large. 16