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Unformatted text preview: 1 Practice #10 Solutions Inventory Management BUAD311 Operations Management Fall 2009 Hiroshi Ochiumi 1. SY Manufacturers (SYM) is producing Tshirts in 3 colors: red, blue and white. The monthly demand for each color is 3000 units. Each shirt requires 0.5 pounds of raw cot ton that is imported from the LuftGeshfetTextile (LGT) Company in Brazil. The pur chasing price per pound is $2.5 (paid only when the cotton arrives to the SYMs facili ties) and transportation cost by sea is $0.20 per pound. The traveling time from LGTs facility in Brazil to the SYM facility in the USA is 2 weeks. The cost of placing a cotton order, by SYM, is $100 and the annual interest rate that SYM is facing is 20%. a. What is optimal order quantity of cotton? Total demand (D) = 3*12 months * 3000 units * 0.5 pound = 54000 pounds Total purchasing cost per unit (c) = $2.5 + $0.20 = 2.70 Set up cost (S) = $100 Holding cost per unit = 2.70 * 20% = $0.54 pounds H DS EOQ 4472 54 . 100 * 54000 * 2 2 4,472 pounds per order. b. How frequent should the company order cotton? Let us begin with the number of orders. Number of orders = Total demand / EOQ = 54000 / 4472 = 12.08 times That is the SYM orders 12.08 times a year. The company orders every 12 months / 12.08 = 0.99 months c. Assuming that the first order is needed in 04/01/2007 when should SYM place the order? Recall that the delivery leadtime is 2 weeks. Thus, the company needs to order the cotton two weeks in advance, which is 03/15/2007. d. How many orders will SYM place during the year (04/01/200703/31/2008) See answer to question b. e. What is the resulting annual holding cost? Annual holding cost = H*Q/2 = 0.54 * 4472 / 2 = $1207 per year. f. What is the resulting annual ordering cost? Annual ordering cost = Number of orders * ordering cost = 12.08 * 100 = $1208 2 g. If the annual interest cost is only 5% how will it affect the annual number of or ders, the optimal batch size and the average inventory (You are not expected to provide a numerical answer to this question. provide a numerical answer to this question....
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 '07
 Vaitsos
 Management

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