Bob of Bob’s Fish and Tackle, has a business that specialized in the sales of one type of special fishing hook. The annual volume of hooks was 4,000 hooks per keg, and they were sold to retail customers in an even flow. His warehousing costs, was $2 per year for keg space and his order-processing costs were $80 per order without regard to the size. Bob had to rent a constant amount of warehouse space for the year and it had to be large enough to accommodate an entire order when it arrived, he did not maintain safety stock because he bought the hooks on a delivered basis.
Part A: Explain the logic of the EOQ model. Then using the scenario above, and the EOQ methods from the text, how many kegs of fishing hooks should Bob order at one time?
Part B: Assume all conditions in Part A hold, except that Bob’s supplier now offers a quantity discount in the form of absorbing all or part of Bob’s order processing costs. For orders of 800 or more kegs of hooks, the supplier will absorb all the order processing costs; for orders between 150 and 799 kegs, the supplier will absorb half. For orders between 100 and 149 kegs, the supplier will absorb a quarter of the costs. What is Bob’s new EOQ? (Lay out all costs in tabular form)
Part C: Bob decides to expand his business to include manufacturing fish bait. He needs to determine where to place a new manufacturing facility. From what we learned about facility location decisions, explain how does a raw material’s status as pure, weight-losing, or weight-gaining influence the facility location decision? Give examples of both weight-gaining products and weight-losing products.