RSM 270 - CASE 2

# RSM 270 - CASE 2 - RSM 270 Case Study Nissan Battery...

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RSM 270 Case Study: Nissan Battery Electric Vehicles (BEV) Xi Chen 1000822229 Di Wang 1000731693 Tai Fu 1000835929 April 10, 2016

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Question #1: *Total Annual Cost = Purchasing Cost + Ordering Cost + Holding Cost* - Assume the Annual Demand (D) is same for COQ & EOQ: In 2014, a total of 22,610 Nissan Leafs were sold in the US. [1 car => 4tires] => D = 22610*4 = 90440 tires - The cost components used are same for COQ & EOQ: Nissan pays \$174 for each tire => C = \$174/tire Annual holding cost is 35 percent of each tires’ value => H = Ci = 174*0.35 = \$60.9/tire It costs approximately \$250 to place an order (clerical costs) => S = \$250/order Thus, they have same Purchasing Cost : CD = 174*90440 = \$15736560 - Ordering Cost : # of units per replenishment order (Q) a. Nissan currently orders 2000 sets of tires per month. [1 set => 4 tires] => COQ = 2000*4 = 8000 tires for each month b. EOQ = √(2DS/H) = √[(2*90440*250)/60.9) = 861.7 ≈ 862 tires/order The number of orders Nissan will place per year: a. D/Q (COQ) = 90440/8000 = 11.305 ≈ 12 orders/year b. D/Q (EOQ) = 90440/862 = 104.92 ≈ 105 orders/year Thus, (D/Q)*S (COQ) = 12*250 = \$3000 (D/Q)*S (EOQ) = 105*250 = \$26250 - Holding Cost : (Q/2)*H (COQ) = (8000/2)*60.9 = \$243600 (Q/2)*H (EOQ) = (862/2)*60.9 = \$26247.9 - Total Annual Cost = Purchasing Cost + Ordering Cost + Holding Cost
T (COQ) = 15736560+3000+243600 = \$15983160 T (EOQ = 15736560+26250+26247.9 = \$15789057.9 The difference of total annual cost: => T (COQ) - T (EOQ) = \$15983160-\$15789057.9 = \$194102.1 The cost for each tire, annual holding cost and clerical costs are same for COQ and EOQ. Assum e the annual demand for specific year is also same: the demand is 90440 tires in 2014. Specificall y, there are 8000 tires for each month with 12 orders per year, for COQ. On the other hand, for E OQ, Nissan required approximately 862 tires and totally 105 orders for that year. Therefor, Nissa n should use EOQ with quantity of 862 tires every order, since this order method provides the lo wer total cost which can save by \$194102.1 Question #2: Given: - The lead time from Japan is 4 weeks for shipping => Lead time (L) = 4 weeks = 28 days - Each individual cell in the battery pack has a value of \$5 => C = \$5 - The associated carrying cost of 25% of cell’s value => H = Ci = \$5*0.25 = \$1.25

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• Fall '13
• Annual demand, optimal order quantity

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