Using the gross requirements schedule below*, prepare an alternative ordering sy

Question

Using the gross requirements schedule below*, prepare an alternative ordering system POQ that orders every 3 weeks for 3 weeks ahead (a periodic order quantity) as a Lot Sizing technique. What is the cost of this ordering system?

Period 1-1 lO vremen Pepare a net erements plar eer nte as onole bers n (en hole nombers I O Prod Gross requi rements n-hand at kegjinairog of penod i5 On-hardatend of peri od Net reavitements Order receipt Onder release l)The cost. of this ordering system is [ ] (enter as whole nom ber

Explanation / Answer

Assumption

Average inventory level (AIL) = (Beginning Inv + Ending Inv) / 2

Note:

Some books calculate AIL as AIL = (Beginning Inv + Ending Inv + Order receipt) / 2 ----(1) and some other books just multiply the inventory carrying cost directly with ending inventory ----(2). For this type of assumptions, total cost will be -

For (1) --> $1023
For (2) --> $900

use the convention used by your instructor/ book.

Period: 0 1 2 3 4 5 6 7 8 9 10 Gross Requirement 45 20 50 0 10 50 30 0 30 55 On hand begin of period 45 0 0 50 0 0 80 30 0 85 55 On hand end of period 0 50 0 0 80 30 0 85 55 0 Net requirement 0 0 0 0 0 0 0 0 0 Planned order receipt 70 90 85 Planned order release 70 0 0 90 0 0 85 0 0 0 Average inventory level (AIL) 0 25 25 0 40 55 15 42.5 70 27.5 Total Holding cost (AIL x $1) $0 $25 $25 $0 $40 $55 $15 $43 $70 $28 $300 Setup cost $200 $200 $200 $600 $900

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