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, with each trip
costing $1,000. The motorcycle plant assembles and sells 300 motorcycles each day. Each
engine costs $500, and Harley incurs a holding cost of 20 percent per year.
a. How many engines should Harley load onto each truck? What is the cycle inventory of
engines at Harley?
b. As part of its initiative to implement just-in-time (JIT) manufacturing at the motorcycle
assembly plant, Harley 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 inventory costs
at Harley? What should the cost of each truck be if a load of 100 engines is optimal for
Harley?
courses.csusm.edu/ba690grs/cls1001/chopra/7-1harleydavidson.xls
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hblj
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a. To determine the number of engines Harley should load onto each truck, we need to consider the cycle inventory and the holding cost.
First, let's calculate the cycle inventory. The cycle inventory is the average number of units in transit. In this case, each truck carries engines between the two plants. Given that each truck trip costs $1,000 and the cost of each engine is $500, the number of engines loaded on each truck should be:
Number of engines per truck = Truck trip cost / Cost per engine
Number of engines per truck = $1,000 / $500
Number of engines per truck = 2 engines
Therefore, Harley should load 2 engines onto each truck.
Next, let's calculate the cycle inventory. The cycle inventory is the average number of units in transit. Since each truck carries 2 engines and the motorcycle plant assembles and sells 300 motorcycles per day, each truck will complete 300/2 = 150 trips per day.
The cycle inventory is given by:
Cycle Inventory = (Number of engines per truck / 2) * (Number of trucks in transit)
Cycle Inventory = (2 / 2) * 150
Cycle Inventory = 150 engines
Therefore, the cycle inventory of engines at Harley is 150 engines.
b. If Harley reduces the number of engines loaded on each truck to 100, the impact on annual inventory costs needs to be calculated.
First, calculate the new number of trips needed per day:
New number of trips = Number of engines per day / Number of engines per truck
New number of trips = 300 / 100
New number of trips = 3 trips
At this reduced load of 100 engines per truck, each truck completes 3 trips per day.
Next, calculate the new annual cycle inventory:
New cycle inventory = (Number of engines per truck / 2) * (Number of trucks in transit)
New cycle inventory = (100 / 2) * 3
New cycle inventory = 150 engines
Therefore, the new annual cycle inventory is still 150 engines.
To find the optimal cost per truck when the load is 100 engines, we need to equate the holding cost to the truck cost.
Holding Cost = (New cycle inventory) * (Cost per engine) * (Holding cost)
$1,000 = 150 * $500 * 20%
$1,000 = $75,000 * 20%
$1,000 = $15,000
The cost per truck should be $15,000 for a load of 100 engines to be optimal for Harley.
To summarize:
a. Harley should load 2 engines onto each truck, and the cycle inventory of engines is 150 engines.
b. The decision to reduce the load to 100 engines does not affect the annual inventory costs, but the cost per truck should be $15,000 for the load of 100 engines to be optimal.