MGT613 Production / Operations Management Assignment 2 fall 2012

During past few months DEEWAN automobile assembling unit is experiencing inefficiencies in its inventory management processes. Company has multiple suppliers across the world delivering various parts for the company’s products. For smooth running and proper record of the business, the company needs a way to keep a list of all inventories with all the records of buying, selling and other information regarding effective inventory management. As a student of operation management, you are required to provide the management your expert opinion about:

Basic requirements for effective inventory management.
DEEWAN automobile assembling unit also deals with batteries to car dealers and auto mechanics abroad. The annual demand is approximately 12000 batteries. The supplier pays Rs.280 for each battery and estimates that the annual holding cost is 30 percent of the battery’s value. It costs approximately Rs. 200 to place an order (managerial and clerical costs). The supplier currently orders 1000 batteries per month. You are required to
a) Determine the ordering, holding, and total inventory costs for the current order quantity.
b) Determine the economic order quantity (EOQ).
c) How many orders will be placed per year using the EOQ?

We are given the following information:

annual demand:

D = 12000 batteries per year

item cost:

c = 280 per battery

holding cost:

H=ic= 0:30(280) = 84 per battery per year

order cost:

S= 200 per order

current order quantity:

Q= 1000 batteries
(a) D/Q*(S) + Q/2*(H)

(b) EOQ is squre root of  2DS/H

(c) D/EOQ