The current inventory policy f
The current inventory policy for M&B calls for purchasingHRF 5123 in lot order quantities of 155 cases from the ChemCorporation. M&B has an inventory control system that monitorsinventory levels of all products on a weekly basis. Inventoryrecords are attached. M&B operations require that 155 cases bereordered when inventory levels drop to 55 cases within thewarehouse. Each case of HRF 5123 cost $10 and M&B has a 14%annual holding cost rate for its inventory. It cost $12 to preparea purchase order for 1 case of HRF 5123. Assume allshortage cost are negligible and all shortages are fulfilled withbackorders. (a) What is the value of the total annualinventory costs for HRF 5123 (need to figure out annual demand, useall data to calculate results)?
i) Does the current inventory policy forHRF 5123 meet this directive? If not, what should be the inventorypolicy in terms of optimum order quantity (EOQ) and reorderpoint? If the current policy does meet the safetystock objective, what is the advantage (in terms of cost) of theoptimal compared with the current policy?
iii) What would be the impact to EOQ ifholding cost varied from 5% to 15% (show a one way data table andplot of holding cost varying in increments of 1%
iv) What would be the impact to EOQ ifholding cost varied from 5% to 15% and ordering cost varied from$5to $15 per order (show a two way data table varying holding cost byincrements of 1% and varying ordering cost by increments of $1)(c) M&B is considering purchasing fromanother supplier located in Slidell, Louisiana. This suppliercharges $11 per case but delivers products on time in 14 days.Should M&B change suppliers? Support your decision withanalysis. (d) What is the total annualinventory cost associated with the supplier selected in part c?
| Week | Date | Inventory Level | Reorder Transaction |
| 1 | 4-Jan-16 | 198 | Begining Inventory |
| 2 | 11-Jan-16 | 122 | |
| 3 | 18-Jan-16 | 106 | |
| 4 | 25-Jan-16 | 66 | |
| 5 | 1-Feb-16 | 55 | Order Placed |
| 6 | 8-Feb-16 | 30 | |
| 7 | 15-Feb-16 | 7 | |
| 7 | 22-Feb-16 | 160 | Order Received |
| 8 | 29-Feb-16 | 141 | |
| 9 | 7-Mar-16 | 130 | |
| 10 | 14-Mar-16 | 108 | |
| 11 | 21-Mar-16 | 97 | |
| 12 | 28-Mar-16 | 62 | |
| 13 | 4-Apr-16 | 51 | Order Placed |
| 14 | 11-Apr-16 | 28 | |
| 15 | 18-Apr-16 | 3 | |
| 16 | 25-Apr-16 | 0 | |
| 16 | 2-May-16 | 155 | Order Received |
| 17 | 9-May-16 | 141 | |
| 18 | 16-May-16 | 128 | |
| 19 | 23-May-16 | 108 | |
| 20 | 30-May-16 | 97 | |
| 21 | 6-Jun-16 | 87 | |
| 22 | 13-Jun-16 | 53 | Order Placed |
| 23 | 20-Jun-16 | 44 | |
| 24 | 27-Jun-16 | 31 | |
| 24 | 4-Jul-16 | 186 | Order Received |
| 25 | 11-Jul-16 | 174 | |
| 26 | 18-Jul-16 | 130 | |
| 27 | 25-Jul-16 | 128 | |
| 28 | 1-Aug-16 | 118 | |
| 29 | 8-Aug-16 | 88 | |
| 30 | 15-Aug-16 | 56 | Order Placed |
| 31 | 22-Aug-16 | 34 | |
| 31 | 29-Aug-16 | 184 | Order Received |
| 32 | 5-Sep-16 | 156 | |
| 33 | 12-Sep-16 | 138 | |
| 34 | 19-Sep-16 | 119 | |
| 35 | 26-Sep-16 | 94 | |
| 36 | 3-Oct-16 | 67 | |
| 37 | 10-Oct-16 | 30 | Order Placed |
| 38 | 17-Oct-16 | 12 | |
| 39 | 24-Oct-16 | 0 | |
| 40 | 31-Oct-16 | 0 | |
| 40 | 7-Nov-16 | 155 | Order Received |
| 41 | 14-Nov-16 | 154 | |
| 42 | 21-Nov-16 | 142 | |
| 43 | 28-Nov-16 | 121 | |
| 44 | 5-Dec-16 | 98 | |
| 45 | 12-Dec-16 | 72 | |
| 46 | 19-Dec-16 | 54 | Order Placed |
| 47 | 26-Dec-16 | 37 | |
| 47 | 2-Jan-17 | 190 | Order Received |
| 48 | 9-Jan-17 | 167 | |
| 49 | 16-Jan-17 | 151 | |
| 50 | 23-Jan-17 | 118 | |
| 51 | 30-Jan-17 | 101 | |
| 52 | 6-Feb-17 | 79 | |
| 13-Feb-17 | 68 | Ending Inventory |
Answer:
ANSWER TO Q .NO.(a) ANNUAL DEMAND = OPENING STOCK +PURCHASES-CLOSING STOCK that =198(stock on1-4-2016)+930(155*6)-37(26-12-2016)=1091.
ANNUAL INVENTORY COST =PURCHASE PRICE HOLDING COST+ORDERING COSTthat =
1)PURCHASE PRICE=$10*1091=$10910
working 2)holding cost = 1/2*roq*holding cost per unit perorder.
that = 1091*10*14/100=763.7
3) ORDERING COST=12*6=72.
ANNUAL INVENTORY COST=$10910+$763.7+$72=$11457.7.
ANSWER FOR Q.NO (a)(1)the current inventory policy for HRF 5123dos not meet the directive because the inventory level reached ZERO3 times
the results in intereption of production the period of ONE WEEKthat is (25 APR 2016 TO 2 MAY 2016) , TWO WEEKS that is (24 OCT2016 TO 7 NOV 2016).
so EOQ=(square root of) Annual demand*2*orderingcost perorder/carring cost per order.
(square root of)1091*2*$12/$1.4=137.
working notes
1) annual demand =1091 above done
2)ordering cost per order=$12.
3)carrieying cost p.a=14*10%=1.4.
advantage will be saving in the form of annual invenorycost.annual inventory cost at EOQ= purchase price +total carriengcost+total ordering cost =$10910+$96+$96=$11102.
working= purchase price=10*1091=$10910.
total carrieng cost=1/2*137*10*14/100=$96.
total ordering cost=1091/137*12=.$96.
there for we save $355.7(11457.7-11102).
answer for q.no(2) if carrieng cost increased to 15% then impacton ROQ=(square root of) 1091*2*12/1.5=132.
total cost=1091*10*132*1/2*1.5+1091/132*12=11110-11102=$8.
answer for q.no-(4)- impact on EOQ if ordering cost$15&carring cost 15%
(square root of) 1091*2*15/1.5=148.
total cost at newroq=1091*10+148*1/2*15%of10+1091/148*15=11132-11102=30.
answered for Q.NO (C)=
answeredfor Q.NO(d)=annual inventory cost if new supplierselected=1091*11+
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