Problem Set
Independent Demand Inventory-Part A
1) 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 (assume production and demand for motorcycles occurs 365 days every year). Each engine costs $500 and Harley incurs a holding cost of 20 percent of the item’s value per year. Calculate the following values:
i. Annual demand for engines
ii. Best shipping quantity per truck to minimize total costs
iii. Cycle inventory of engines
iv. Daily throughput rate for engines
v. Flow time (in days) for engines
(Hint: use the economic order quantity to determine the number of engines to load onto a truck. Recall that cycle inventory is half of the EOQ. Assume that a truck has unlimited capacity to carry engines. That is, a truck can carry the EOQ regardless of how large the EOQ may be.)
2) 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?