1. Your company assembles five different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all five models. You have been given the assignment of choosing a supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,000 each. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process for which you agree to reimburse the supplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data have been collected:
|
Requirements (annual forecast)
|
12,000 units
|
|
Weight per engine
|
22 pounds
|
|
Order processing cost
|
$125 per order
|
|
Inventory carry cost
|
20 percent of the average value of inventory per year
|
Note: Assume that half of lot size is in inventory on average (1,000/2 = 500 units). Two qualified suppliers have submitted the following quotations:
|
ORDER QUANTITY
|
SUPPLIER I UNIT PRICE
|
SUPPLIER 2
UNIT PRICE
|
|
1 to 1,499 units/order
|
$510.00
|
$505.00
|
|
1,500 to 2,999 units/order
|
500.00
|
$505.00
|
|
3,000+ units/order
|
490.00
|
488.00
|
|
Tooling costs
|
$22,000
|
$20,000
|
|
Distance
|
125miles
|
100mi les
|
Your assistant has obtained the following freight rates from your carrier:
Truckload (40,000 lbs. each load): $0.80 per ton-mile
Less-than-truckload: $1.20 per ton-mile
Note: Per ton-mile = 2,000 lbs. per mile.
a. Perform a total cost of ownership analysis and select a supplier.
b. Would it make economic sense to order in truckload quantities? Would your supplier selection change if you ordered truckload quantities?
2. U.S. Airfilter has hired you as a supply chain consultant. The company makes air filters for residential heating and air-conditioning systems. These filters are made in a single plant located in Louisville, Kentucky, in the United States. They are distributed to retailers through wholesale centers in 100 locations in the United States, Canada, and Europe. You have collected the following data relating to the value of inventory in the U.S. Airfilter supply chain:
|
|
QUARTER I (JANUARY THROUGH MARCH)
|
QUARTER 2 (Ann. THROUGH JUNE)
|
QUARTER 3 (JULY TIIROUGH SEPTEMBER)
|
QUARTER 4 (OCTOBER THROUGII DECEMBER)
|
|
Sales (total quarter):
|
|
|
|
|
|
United States
|
300
|
350
|
405
|
375
|
|
Canada
|
75
|
60
|
75
|
70
|
|
Europe
|
30
|
33
|
20
|
15
|
|
Cost of goods
sold (total quarter)
|
280
|
295
|
340
|
350
|
|
Raw materials at
the Louisville
plant (end-of-quarter)
|
50
|
40
|
55
|
60
|
|
Work-in-process and finished goods at the
|
100
|
105
|
120
|
150
|
|
Louisville plant (end-of-quarter)
|
|
|
|
|
|
Distribution center inventory (end-of-quarter):
|
|
|
|
|
|
United States
|
25
|
27
|
23
|
30
|
|
Canada
|
10
|
11
|
15
|
16
|
|
Europe
|
5
|
4
|
5
|
5
|
All amounts in millions of U.S. dollars.
a. What is the average inventory turnover for the firm?
b. If you were given the assignment to increase inventory turnover, what would you focus on? Why?
c. The company reported that it used $500M worth of raw material during the year. On average, how many weeks of supply of raw material are on hand at the factory?
3. Jill's Job Shop buys two parts (Tegdiws and Widgets) for use in its production system from two different suppliers. The parts are needed throughout the entire 52-week year. Tegdiws are used at a relatively constant rate and are ordered whenever the remaining quantity drops to the reorder level. Widgets are ordered from a supplier who stops by every three weeks. Data for both products are as follows:
|
Item
|
Tegdiws
|
Widget
|
|
Annual demand
|
10.000
|
5,000
|
|
Holding cost (% of item cost)
|
20%
|
20%
|
|
Setup or order cost
|
5150.00
|
$25.00
|
|
Lead time
|
4 weeks
|
1 week
|
|
Safety stock
|
55 units
|
5 units
|
|
Item cost
|
$10.00
|
$2.00
|
a. What is the inventory control system for Tegdiws? That is, what is the reorder quantity and what is the reorder point?
b. What is the inventory control system for Widgets?
4. Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 2,000 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $5 per unit of average inventory. Every time an order is placed for more of item X, it costs $10.
a. Whenever item X is ordered, what should the order size be?
b. What is the annual cost for ordering item X?
c. What is the annual cost for storing item X?
5. In the past. Taylor Industries has used a fixed-time period inventory system that involved taking a complete inventory count of all items each month. However, increasing labor costs are forcing Taylor Industries to examine alternative ways to reduce the amount of labor involved in inventory stockrooms, yet without increasing other costs, such as shortage costs. Here is a random sample of 20 of Taylor's items.
|
ITEM NUMBER
|
ANNUAL USAGE
|
ITEM NUMBER
|
ANNUAL USAGE
|
|
1
|
$ 1,500
|
11
|
$13.000
|
|
2
|
12,000
|
12
|
600
|
|
3
|
2,200
|
13
|
42.000
|
|
4
|
50,000
|
14
|
9,900
|
|
5
|
9,600
|
15
|
1,200
|
|
6
|
750
|
16
|
10,200
|
|
7
|
2.000
|
17
|
4,000
|
|
8
|
11,000
|
18
|
61,000
|
|
9
|
800
|
19
|
3,500
|
|
10
|
15,000
|
20
|
2,900
|
a. What would you recommend Taylor do to cut back its labor cost? (Illustrate using an ABC plan.)
b. Item 15 is critical to continued operations. How would you recommend it be classified?