| EOQ Assignment |
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| You are the company’s Supply Chain Manager — solve the below questions to ensure an optimal ordering policy. |
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| Annual requirements (R) = |
18,000 |
units |
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| Order cost (S) = |
$68.00 |
per order |
68 |
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| Holding rate (k) = |
32.0% |
annually |
32 |
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| Unit cost (C) = |
$52.87 |
per unit |
52.87 |
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| Lead time (LT) = |
4 |
days |
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| Number of days per year = |
365 |
days |
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| Annual Holding Cost Per Unit |
$16.92 |
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16.91 |
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| Days in a year |
365 |
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| Compute the following: |
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| Note: You must include formulas for full credit — do NOT simply type in answers. Add additional cells if necessary, but label each clearly! |
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| a) EOQ = |
144766.41 |
units |
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| EOQ (rounded to nearest whole item) |
380 |
units |
0 |
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| b) total purchase cost = |
$951,660 |
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| c) annual holding cost = |
$3,221 |
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| d) annual order cost = |
$3,213 |
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| e) total annual logistics cost = |
$6,434 |
(without purchase cost) |
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| f) reorder point |
197.26 |
units (note: no variability in demand or lead-time in this situation) |
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| g) number of orders placed per year = |
47.3 |
orders |
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| h) time between orders = |
7.7 |
days |
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| i) plot cost curves — holding cost, order cost and total cost. Use the layout below the questions, if needed. |
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| j) If you are required to order by the whole case, at 50-per case, what Q would you recommend? |
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units |
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| k) What is the new Total Annual Logistics Cost of the Whole-Case Q? |
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(suggestion — you can compute here, or just change your Q above where your EOQ is and see the resulting costs — don’t forget to undo this change to put EOQ back!) |
| l) What is the difference in Total Annual Logistics Cost of EOQ and that of the Whole-Case Q? |
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| m) Given your answer to l above, what does this say about the EOQ Formula? |
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| n) Your CEO just announced that inventory levels must be cut by 10% in order to reduce costs (based on your original EOQ in a.). What would your new Q need to be? |
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units |
(note: average inventory = Q/2 ) |
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| o) Based on your new Q from above, you will actually raising costs unless you can change S too. What would your new S need to be in order to stay with an optimal ordering policy? |
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| p) How much must S be reduced from the current cost-per order to reach your new goal? |
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| q) List 3 specific ways in which you can lower S in order to reach your goal? |
1) |
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2) |
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3) |
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Q |
Annual Holding Cost |
Annual Ordering Cost |
Total Cost |
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50 |
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75 |
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100 |
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125 |
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150 |
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175 |
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200 |
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225 |
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250 |
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275 |
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300 |
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325 |
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350 |
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375 |
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400 |
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425 |
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450 |
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475 |
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500 |
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525 |
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550 |
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575 |
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600 |
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625 |
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650 |
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675 |
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700 |
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725 |
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750 |
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775 |
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800 |
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825 |
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850 |
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875 |
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900 |
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