Assessment Cover Sheet
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Assessment Title
Final project
Programme Title:
BILM
Course No.:
TLB 6301
Course Title:
Inventory and warehouse management
Student Name:
Yusuf Khalifa Hamad
Student ID:
201000654
Tutor:
Wesley Lee
Due Date:
28th of December 2013
Date submitted:
28th of December 2013
By submitting this assessment for marking, either electronically or as hard copy, I confirm the
following:
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This assignment is my own work
Any information used has been properly referenced.
I understand that a copy of my work may be used for moderation.
I have kept a copy of this assignment
I have read and/or attached the Turnitin Originality Report
Do not write below this line. For Polytechnic use only.
Assessor:
Grade/Mark:
Comments:
Date of Marking:
Part one
Question one:
ℎ(𝐴)
To determine the lot size for each product separately, we have to apply the EOQ “Economic Order
Quantity” equation for each item.
= 30% = 0.3 𝐵𝐷
(2)(336000)(420)
2𝑈𝑂
282240000
𝐸𝑂𝑄(𝐴) = √
= √
= √
≈ 23525 𝑐𝑎𝑠𝑒𝑠 𝑜𝑓 𝐴𝑙𝑎𝑖𝑛
(0.3)(1.7)
ℎ𝐶
0.51
ℎ(𝐻) = 25% = 0.25 𝐵𝐷
(2)(96000)(680)
2𝑈𝑂
130560000
𝐸𝑂𝑄(𝐻) = √
= √
= √
≈ 10431 𝑐𝑎𝑠𝑒𝑠 𝑜𝑓 𝐻𝑖𝑔ℎ𝑙𝑎𝑛𝑑
(0.25)(4.8)
ℎ𝐶
1.2
ℎ(𝑉) = 30% = 0.3 𝐵𝐷
(2)(48000)(1350)
2𝑈𝑂
129600000
𝐸𝑂𝑄(𝑉) = √
= √
= √
≈ 5555 𝑐𝑎𝑠𝑒𝑠 𝑜𝑓 𝑉𝑜𝑠𝑠
(0.3)(14)
ℎ𝐶
4.2
𝐼(𝐴)
We have to apply the I “Cycle Inventory” equation to find the cycle inventory of each product.
𝑄(𝐴)
23525
=
=
= 11762.5
2
2
𝐼(𝐻) =
𝑄(𝐻)
10431
=
= 5215.5
2
2
𝐼(𝑉) =
𝑄(𝑉)
5555
=
= 2777.5
2
2
𝑇𝐶(𝐴)
To find the total annual supply chain cost in the case of making separate orders we have to
calculate the TC “Total Cost” for each item individually then add them together.
𝑄(𝐴)
𝐷(𝐴)
23525
336000
=
ℎ(𝐴) 𝐶(𝐴) +
𝑆(𝐴) =
0.51 +
420 = 5998.88 + 5998.72
2
𝑄(𝐴)
2
23525
= 11997.6 𝐵𝐷
𝑇𝐶(𝐻) =
𝑇𝐶(𝑉) =
𝑄(𝐻)
𝐷(𝐻)
10431
96000
ℎ(𝐻) 𝐶(𝐻) +
𝑆(𝐻) =
1.2 +
680 = 6258.6 + 6258.27 = 12516.87 𝐵𝐷
2
𝑄(𝐻)
2
10431
𝑄(𝑉)
𝐷(𝑉)
5555
48000
ℎ(𝑉) 𝐶(𝑉) +
𝑆(𝑉) =
4.2 +
1350 = 11665.5 + 11665.17
2
𝑄(𝑉)
2
5555
= 23330.67 𝐵𝐷
𝑇𝐶 = 𝑇𝐶(𝐴) + 𝑇𝐶(𝐻) + 𝑇𝐶(𝑉) = 11997.6 + 12516.87 + 23330.67 = 47845.14 𝐵𝐷
Question two:
-
To find the lost size of each product in the aggregation scenario we first have to calculate the order
frequency (n*) then use it to find the lost size (Q) of each product.
S* = 𝑆 + 𝑠(𝐴) + 𝑠(𝐻) + 𝑠(𝑉) = 250 + (420 − 250) + (680 − 250) + (1350 − 250) = 1950 𝐵𝐷
𝐷(𝐴) ℎ(𝐴) 𝐶(𝐴) + 𝐷(𝐻) ℎ(𝐻) 𝐶(𝐻) + 𝐷(𝑉) ℎ(𝑉) 𝐶(𝑉)
n* = √
2S*
(336000 × 0.51) + (96000 × 1.2) + (48000 × 4.2)
488160
= √
= √
(2)(1950)
3900
= 11.187905557754 ≈ 11 𝑑𝑎𝑦𝑠
𝑄(𝐴) =
𝐷(𝐴)
336000
=
≈ 30545 𝑐𝑎𝑠𝑒𝑠 𝑜𝑓 𝐴𝑙𝑎𝑖𝑛
𝑛*
11
𝑄(𝐻) =
𝐷(𝐻)
96000
=
≈ 8727 𝑐𝑎𝑠𝑒𝑠 𝑜𝑓 𝐻𝑖𝑔ℎ𝑙𝑎𝑛𝑑
𝑛*
11
𝑄(𝑉) =
𝐷(𝑉)
48000
=
≈ 4364 𝑐𝑎𝑠𝑒𝑠 𝑜𝑓 𝑉𝑜𝑠𝑠
𝑛*
11
𝐼(𝐴)
Cycle inventory for each product:
𝑄(𝐴)
30545
=
=
= 15272.5
2
2
𝐼(𝐻) =
𝑄(𝐻)
8727
=
= 4363.5
2
2
𝐼(𝑉) =
𝑄(𝑉)
4364
=
= 2182
2
2
-
The total supply chain cost in the aggregation scenario:
𝑄(𝐴)
𝑄(𝐻)
𝑄(𝑉)
𝑄
𝐷
𝑇𝐶 =
ℎ𝐶 +
𝑆=(
ℎ(𝐴) 𝐶(𝐴) +
ℎ(𝐻) 𝐶(𝐻) +
ℎ(𝑉) 𝐶(𝑉) ) + (n*)(S*)
2
𝑄
2
2
2
30545
8727
4364
=(
0.51 +
1.2 +
4.2) + (11)(1950)
2
2
2
= 7788.975 + 5236.2 + 9164.4 + 21450 = 43639.58 𝐵𝐷
Question three:
By comparing the results, we find that in the aggregation scenario the total cost “TC”, the lot size “Q” and
the cycle inventory “I” have been all effectively reduced. The main reason for this is the reduction in the
fixed order cost “local charges” by spreading it across multiple products. As a result, the following supply
chain and inventory management goals have been achieved:
-
Reducing the inventory holding cost by reducing the optimal lot size.
Increasing the profit margin by decreasing the total annual cost.
Reducing lead time by having a lower cycle inventory.
Question four:
𝑄𝐷 =
(0.3)(96000)
(4.8)(10431) 28800 50068.8
𝑑𝐷
𝐶Q*
+
=
+
=
+
(𝐶 − 𝑑)ℎ 𝐶 − 𝑑
(4.8 − 0.3)(2.5)
(4.8) − (0.3)
11.25
4.5
= 13686 𝑐𝑎𝑠𝑒𝑠 𝑜𝑓 𝐻𝑖𝑔ℎ𝑙𝑎𝑛𝑑
Question five:
- We first have to find EOQ under the price of discount.
𝐶2 = 14 − (14 × 5%) = 13.3
(2)(48000)(1350)
2𝑈𝑂
129600000
𝑄2 ∗= √
= √
= √
≈ 5699 𝑐𝑎𝑠𝑒𝑠
(0.3)(13.3)
ℎ𝐶2
3.99
-
1523 does meet the minimum quantity requirement to get the discount, so we consider the
minimum quantity “10001” is the new Q in order to be applicable for the discount, and then we
calculate the TC under this new Q and new C.
Q2
𝐷
10001
48000
TC(Q2C2) =
h𝐶2 +
𝑆 + 𝐶2 D =
3.99 +
1350 + (13.3)(48000)
2
𝑄2
2
10001
= 19951.995 + 6479.35 + 638400 = 664831.35 𝐵𝐷
𝑇𝐶(𝐶,𝑄)
-
Since there is not next lower price except the original price, we now have to calculate the TC under
the original price “C” and quantity “Q” to compare the results.
𝑄
𝐷
5555
48000
= ℎ𝐶 + 𝑆 + 𝐶𝐷 =
4.2 +
1350 + (14)(48000)
2
𝑄
2
5555
= 11665.5 + 11665.166516651 + 672000 = 695330.67 𝐵𝐷
Based on the previous results we conclude that by purchasing the minimum quantity that would
make our order applicable for the discount, we would have a lower total cost. So the purchasing lot
size is 10001 cases “the minimum quantity to receive the discount”.
Part two
Introduction
Inventory is essential for any business as it typically forms the organization’s largest asset,
as well as being a vital input item in the budgeting system. ("Inventory management," ). Inventory
importance is derived from the main reasons of having inventory. These reasons include:
maintaining the product availability and protecting the business from fluctuations in the market in
either the supply or the demand. Inventory has also an effect over the supply chain’s
responsiveness, reliability and efficiency. (ZakiZagena, 2009).
Inventory portfolio
Having a workable inventory portfolio is extremely important for any business, especially
for a start-up business. A workable inventory portfolio helps the business to maintain a healthy
cash flow as it prevents money being tied to excess inventory. Furthermore, it is crucial for a
starting-up business efficiently manage their inventory as inventory management represents the
thin line between failure and success. Moreover, such portfolio is the main input and requirement
to apply an effective inventory management approach. Inventory management provide means to
efficiently balance the service quality and costs, as well as balancing the shortage, ordering and
carrying costs, all of which to achieve the following goals:
 Increase the business profitability by reducing costs.
 Achieve higher levels of customer service.
 Reduce capital investment.
 Increase the accuracy of the inventory information flow.
 Reduced lead times within the supply chain and improved time flow.
("Inventory management," ).
Lead times and backorders
One sensitive problem in inventory management is backorders as it may cause sales lost
and customer dissatisfaction. A backorder is an order for an unavailable product, which may occur
for many reasons, such as an unexpected demand or miscounting the inventory. It may also occur
as a result if depending on the inventory position rather than on-hand inventory to know the
inventory status. One reason for this is the lead time, which is the time between placing an order
and receiving it, as products will be counted as stock as soon as the order is placed even though
they are not available yet. The following graph illustrates backorders:
This problem can be solved simply by increasing the ROP by an amount that covers a certain
period of time. For example, if the average sales of one day are 5 items, the ROP “reorder point”
should be moved 5 items earlier, so that stock lasts for an extra day until the order is received.
The situation should then look like the following:
In addition, it might be useful to have an allocated place for items of the partial amount available
for the backorder. It can also be useful to apply the suitable inventory policy after the ABC
categorization of products, where A items use the two-pin policy, B items use the s, S policy and C
items use the ROP.
Conclusion
In summary, having a workable inventory portfolio is essential for any start-up business. The
backorders is a problem caused by unexpected demand and lead times.
Word count:
485
References
Inventory management. (n.d.). Retrieved from
https://www.msu.edu/course/prr/473/oldstuff/Inventory Management.htm
ZakiZagena. (2009). Inventory management: The role of inventory in supply chain . Retrieved from
http://inventory-managment.blogspot.com/2009/03/role-of-inventory-in-supply-chain.html