Solve: Inventory Management
1. Cooper Automotive Products manufactures components used in the automotive industry. The company purchases parts for use in its manufacturing operation from a variety of different suppliers. One supplier provides a part where the assumptions of the EOQ model are realistic. The annual demand is 5000 units, the ordering cost is $85 per order, and the annual holding cost rate is 20%.
a. Determine the economic order quantity if the cost of the part is $25 per unit.
b. Determine the reorder point if the lead time for an order is 12 days. Assume 250 days of operation per year.
c. Determine the reorder point if the lead time for the part is seven weeks (35 days).
d. Determine the reorder point for part (c) if the reorder point is expressed in terms of the inventory on hand rather than the inventory position.
2. Western Valve Company has a stable demand for 6000 of its WM-4 industrial valves each year. The valve is manufactured by Northern manufacturing Company which supplies the valve to Western for $150.00 per unit. it costs Western $68.00 to place an order, and the carrying cost is 20% of the unit cost per year. Northern Manufacturing will provide a 5% discount on order quantities of 200 units or more and a 10% discount on order quantities of 500 or more units.
a. Determine the optimal order quantity, cycle time, and total cost for the year