.Il T-Mobile LTE 1:19 PM blackboard.stevenson.edu Additional Case Study: LaPlace
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.Il T-Mobile LTE 1:19 PM blackboard.stevenson.edu Additional Case Study: LaPlace Power and Light Co. The southeastem Division of LaPlace Power and Light Company is responsible for providing dependable electric service to customers in and around the area of Metairie, Kenner Destrehan, LaPlace, Lutcher, Hammond, Pontchatoula, Amite, and Bogalusa, Louisiana. One material used extensively to provide this service is the 1/0 AWG aluminum triplex cable, which delivers the electricity from the distribution pole to the meter loop on the house. The Southeastern Division Storeroom purchases the cable that this division will use. For the coming year, this division will need 499,500 feet of this service cable. Because this cable is used only on routine service work, practically all of it is installed during the 5 normal workdays. The current cost of this cable is 41.4 cents per foot Under the present arrangement with the supplier, the Southeastern Storeroom must take one twelfth of its annual need every month. This agreement was reached in order to reduce lead time by assuring LaPlace a regular spot on the supplier's production schedule. Without this agreement, the lead time would be about 12 weeks. No quantity discounts are offered on this cable; however, the supplier requires that a minimum of 15,000 feet be on an order. The Southeastern Storeroom has the space to store a maximum of 300,000 feet of 1/0 AWG aluminum service cable. Associated with each shipment are ordering costs of $50, which include all the costs from making the purchase requisitions to issuing a check for payment. In addition, inventory carrying costs (including taxes) on all items are considered to be 10% of the purchase price per unit per year Because the company is a govenment-regulated, investor-owned utility, both the Louisiana Public Service Commission and its stockholders watch dlosely how effectively the 1. Evaluate the effectiveness of the current ordering system. 2. Can the current system be improved?Explanation / Answer
1- If we analyse the inventory system of this organization then the total cost incurred by the company can be calculated as
Annual demand=499,500 feet and Monthly demand=499,500/12=41,625 feet.
If the co,mpany place monthly order to decrease its cost by minimizing holding cost, then total cost will be
Anuual demand* price per foot in $+ ordering cost *number of order+holding cost
=499500*0.414+50*12+0=206,793+600=$207,393
Holding cost will be 0 because there will be monthly order and no inventory will be left in a month.
2-If the company implement Economic Order Quantity, then
EOQ=2*D*O/H Where D= Annual demand, O= Ordering cost per order and H= Holding cost per unit per annum
H= 10% ofpurchase cost so H in $=0.414*10%=0.0414
EOQ=(*499500*50)/0.0414 =603,260,870=24,561foot
Number of order to be made=499,500/24,561=20 orders
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