Operations Management

Joe Henry's machine shop uses 2,500 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away.
the following information is known about the brackets.

annual demand 2,500
holding cost per bracket per year $1.50
order cost per order $18.75
Lead time 2 days
working days per year 250

a. Given the above information, what would be the economic order quanity (EOQ)?
b. Given the EOQ, what would be the average inventory? What would be the annual inventory holding cost?
c. Given the EOQ, how many orders would be made each year? What would be the annual order cost?
d. Given the EOQ, what is the total annual cost of managing the inventory?
e. What is the time between orders?
f. What is the reorder point (ROP)?

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asked by Jeff
  1. Annual demand : 2,500 pieces
    Holding cost per bracket per year: $1.50
    Order cost per order : $18.75
    Lead time : 2 days
    Working days per year : 250

    a) Given the above information, what would be the economic order quantity (EOQ)?
    Q* = Square root {(2* Order Cost * Demand) / Holding Cost}
    Q* = Square root {(2* 2500 * 18.75) / 1.50} = 250

    b) Given the EOQ, what would be the average inventory?
    Average inventory = 250/2 = 125

    c) Given the EOQ, how many orders would be made each year?
    10 orders per year

    d) Given the EOQ, what is the total annual inventory cost?
    Total annual inventory cost = Square root {(2* annual demand * Order cost per order * holding cost)}
    = Square root {(2*2500*18.75*1.50)} = 375

    e) What is the time between orders?
    25 days

    f) What is the reorder point (ROP)?
    ROP = dL
    = Daily demand * Lead Time
    = (2500/250)(2) = 10*2= 20

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    posted by rami
  2. m. cotteleer electronics supplies microcomputer

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