Piant purchase packages of baby diapers from S&G at a cost of $6 each, and the forecast for next year’s monthly demand is 1750 units.
ITEC 355 Boston University Operations Management Questions
Problem 1. EOQ Model. Piant purchase packages of baby diapers from S&G at a cost of $6 each, and the forecast for next year’s monthly demand is 1750 units. The transportation cost amounts to $18 every time an order is placed for more units with an additional administrative cost of $5. Piant estimated that its opportunity cost of money is 20% per year. Piant issues orders according to EOQ model.
a) What quantity should be ordered each time?
b) What is the total setup costs per year?
c) What is the total holding cost per year?
d) What is the total annual cost of managing the baby diaper inventory?
Problem 2. (s,Q) Model. Mobil Films buy a petroleum based raw material that it uses in its production process for films. The production process demand for this raw material can be approximated by a Normal random variable with mean 25000lbs and standard deviation 3750lbs per day. The supplier of the raw material is far away, and it takes 8 days for the supplier to deliver an order. Each time an order is issued to the supplier Mobil Films incur $340 fixed transportation cost and an additional $45 for handling the paperwork. Annual holding cost for each pound of raw material is 20% and each pound of raw material costs $1.25. Assume that the plant works for 320 days a year. Mobil Films use (s,Q) model to manage inventory and order according to EOQ.
a) What is the order quantity for raw materials in lbs?
b) If Mobil Films would like to be in stock 98% of all reorder periods, what would be the inventory level that Mobil Films should issue an order?
c) Based on your result in part b, what is the level of pipeline inventory: _____________ what is the level of safety stock: _____________
d) What is the total annual cost per year in managing this raw material inventory?
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