Inventory Management Homework
ACME is an electronic equipment manufacturer and distributor. Currently, it has two warehouses in northeast market, one in Massachusetts and the other one in New Jersey (partitioning the northeast market into two regions). Customers (that is, retailers) receiving items from warehouses (each retailer is assigned a warehouse).
Warehouses receive material from its factory in Chicago. ACME operates all warehouses at a service level of 97%. The order lead time from the factory to warehouses is 1 week.
The company is evaluating an alternative, which plans to replace the 2 warehouses with a single warehouse (located some suitable place). This new warehouse will increase the average delivery cost from $1.05 to $1.10.
Two products are used to evaluate this proposal. Demands from past 8 weeks of these two products are provided (see attached Excel file). Inventory holding cost is $0.27 per unit per week, and ordering cost is $60 per order.
We demonstrated the analysis of product A based on weekly demand in class. The result is included. Questions:
For product A, how much percentage can be saved if we use one warehouse to replace existing two warehouses every year?
For product B, how much percentage can be saved if we use one warehouse to replace existing two warehouses every year?
Under what circumstance, one warehouse will be more expensive than two warehouses?
You are comparing two contactors for one of your products. The daily demand information for this product is:
Avg. Demand = 100, Demand Std. Dev. = 30
Your company operates 250 days a year. The first supplier is a local company, whose selling price for the product is $10, and the shipping cost is $0.2, per unit. Order lead time from this supplier is 3 days.
The other choice is an oversea company, whose selling price for the product is only $6, and the shipping cost is $1, per unit. Order lead time from this supplier is 90 days.
Inventory holding cost is 28% of the total cost of the product. The company's service level target is 99%. Ordering cost is $50.
What is the total cost for these two options?
Except price, what other factors do we need to consider?
NOT SURE HOW TO ATTACH A DOCUMENT. SCREEN SHOT OF SPREADSHEET WITH ALL INFO IS BELOW.
|
Week |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
Mean |
Std. Dev. |
Coefficient of Variation |
Total Units |
| Product A |
MA |
33 |
45 |
37 |
38 |
55 |
30 |
18 |
58 |
39.25 |
13.18 |
0.34 |
314 |
|
NJ |
46 |
35 |
41 |
40 |
26 |
48 |
18 |
55 |
38.63 |
12.05 |
0.31 |
309 |
|
Total |
79 |
80 |
78 |
78 |
81 |
78 |
36 |
113 |
77.88 |
20.71 |
0.27 |
623 |
| THC |
THC |
21.33 |
21.6 |
21.06 |
21.06 |
21.87 |
21.06 |
9.72 |
30.51 |
21.03 |
5.59 |
0.27 |
|
| MAHC |
MAHC |
8.91 |
12.15 |
9.99 |
10.26 |
14.85 |
8.1 |
4.86 |
15.66 |
10.60 |
3.56 |
0.34 |
|
| NJHC |
NJHC |
12.42 |
9.45 |
11.07 |
10.8 |
7.02 |
12.96 |
4.86 |
14.85 |
10.43 |
3.25 |
0.31 |
|
|
| Product B |
MA |
0 |
3 |
3 |
0 |
0 |
1 |
3 |
0 |
1.25 |
1.49 |
1.19 |
|
|
NJ |
2 |
4 |
0 |
0 |
3 |
1 |
0 |
0 |
1.25 |
1.58 |
1.26 |
|
|
Total |
2 |
7 |
3 |
0 |
3 |
2 |
3 |
0 |
2.50 |
2.20 |
0.88 |
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| Service Level |
97% |
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1.88 |
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| Holding Cost |
$0.27 |
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| Delivery |
Old |
$1.05 |
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New |
$1.10 |
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| Order Cost |
$60 |
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ROP |
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Avg. Demand |
Safety |
Order |
Average |
Inventory |
Order |
Transportation |
Total |
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over Lead Time |
Stock |
Q |
Inventory |
Holding |
Cost |
Cost |
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|
|
| Product A |
MA |
39.25 |
24.78 |
132.08 |
90.82 |
$24.52 |
$ 17.83 |
$41.21 |
$83.57 |
|
|
|
|
|
NJ |
38.63 |
22.66 |
131.02 |
88.17 |
$23.81 |
$ 17.69 |
$40.56 |
$82.05 |
|
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|
|
Total |
77.88 |
38.95 |
186.04 |
131.98 |
$35.63 |
$ 25.12 |
$81.77 |
$142.52 |
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