SC industries is considering an investment in a new market with the introduction
ID: 375100 • Letter: S
Question
SC industries is considering an investment in a new market with the introduction of Product E. Before they invest in a new production line, the General Manager has asked us to determine what lot sizing technique is most economic for the company. The daily demand (gross requirements) for product E is shown below. Assume a holding cost of $1.50 per unit per period, an ordering cost of $62 per order, a lead time of one day for all order receipts, and 30 units on hand initially. Additionally, 18 units of product E are scheduled to be received in period 4. All of the above mentioned assumptions and order receipts are the same for all three lot sizing techniques. Round all quantities to the next highest whole number (ie. 19.55 = 20) Period 2 3 4 5 Gross Requirements 28 29 27 23 3a) In Excel, on a new tab, determine when a work order should be released for the items and the size of the order using the L4L, EQQ, and PQQ lot sizing techniques and MRP process 3b) In your Word Document, provide a copy of your 3 lot sizing MRPs from excel. Ensure they are professionally presented. Ensure you identity which technique you would recommend to your manager and explain why you chose that technique over the others. (Think about it from a supply chain theme in our class; what made this happen?)Explanation / Answer
Lot-for-Lot policy
Total cost = holding cost + ordering cost
= total inventory * holding cost per unit + number of order release * cost per order
= 2*1.5 + 4*62 = $ 251
_______________
EOQ policy
Average net requirement (demand) = (28+29+27+33+23-30-18)/5 = 19
EOQ = SQRT(2*demand*order cost/holding cost) = SQRT(2*19*62/1.5) = 40 (approx)
Total cost = 80*2.5+3*62 = $ 386
_________________
For POQ policy, review period, P = 40/19 = 2 weeks (approx) . So order is placed every 2 weeks to meet biweekly requirement
Total cost = 52*2.5 + 2*62 = $ 254
Total cost is lowest for lot-for-lot ordering policy.
Period 1 2 3 4 5 Gross requirement 28 29 27 33 23 Scheduled receipt 18 Projected on hand 30 2 0 0 0 0 Planned order receipt 27 27 15 23 Planned order release 27 27 15 23Related Questions
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