5 OPS MGMT Problems Set

1. Your company assembles fi ve different models of a motor scooter that is sold in specialtystores in the United States. The company uses the same engine for all fi ve models. Youhave been given the assignment of choosing a supplier for these engines for the comingyear. Due to the size of your warehouse and other administrative restrictions, you mustorder the engines in lot sizes of 1,000 each. Because of the unique characteristics of theengine, special tooling is needed during the manufacturing process for which you agreeto reimburse the supplier. Your assistant has obtained quotes from two reliable enginesuppliers and you need to decide which to use. The following data have been collected:Requirements (annual forecast)Weight per engineOrder processing costInventory carry cost12,000 units22 pounds$125 per order20 percent of the average value of inventory per yearNote: Assume that half of lot size is in inventory on average (1,000/2 5 500 units).Two qualifi ed suppliers have submitted the following quotations:Order QuantitySupplier 1Unit PriceSupplier 2Unit Price1 to 1,499 units/order1,500 to 2,999 units/order3,0001 units/orderTooling costsDistance$510.00500.00490.00$22,000125 mi les$505.00$505.00488.00$20,000100 mi lesYour assistant has obtained the following freight rates from your carrier:Truckload (40,000 lbs. each load):Less-than-truckload:$0.80 per ton-mile$1.20 per ton-mileNote: Per ton-mile 5 2,000 lbs. per mile.a. Perform a total cost of ownership analysis and select a supplier.b. Would it make economic sense to order in truckload quantities? Would your supplierselection change if you ordered truckload quantities?GLOBAL SOURCING AND PROCUREMENT chapter 16 419LO16–42. U.S. Airfi lter has hired you as a supply chain consultant. The company makes air fi ltersfor residential heating and air-conditioning systems. These fi lters are made in a singleplant located in Louisville, Kentucky, in the United States. They are distributed to retailersthrough wholesale centers in 100 locations in the United States, Canada, and Europe.You have collected the following data relating to the value of inventory in the U.S. Airfi ltersupply chain:Quarter 1(Januarythrough March)Quarter 2(Aprilthrough June)Quarter 3(July throughSeptember)Quarter 4(October throughDecember)Sales (total quarter):United StatesCanadaEurope3007530350603340575203757015Cost of goodssold (total quarter)280 295 340 350Raw materials atthe Louisvilleplant (end-of-quarter)50 40 55 60Work-in-processand fi nishedgoods at theLouisville plant(end-of-quarter)100 105 120 150Distribution centerinventory (end-of-quarter):United StatesCanadaEurope25105271142315530165All amounts in millions of U.S. dollars.a. What is the average inventory turnover for the fi rm?b. If you were given the assignment to increase inventory turnover, what would youfocus on? Why?c. The company reported that it used $500M worth of raw material during the year. Onaverage, how many weeks of supply of raw material are on hand at the factory?Chapter 16, Questions 12, 17 Excel only separate sheets!3. Jill’s Job Shop buys two parts (Tegdiws and Widgets) for use in its production systemfrom two different suppliers. The parts are needed throughout the entire 52-week year.Tegdiws are used at a relatively constant rate and are ordered whenever the remainingquantity drops to the reorder level. Widgets are ordered from a supplier who stops byevery three weeks. Data for both products are as follows:Item Tegdiw WidgetAnnual demandHolding cost (% of item cost)Setup or order costLead timeSafety stockItem cost10,00020%$150.004 weeks55 units$10.005,00020%$25.001 week5 units$2.00a. What is the inventory control system for Tegdiws? That is, what is the reorder quantityand what is the reorder point?b. What is the inventory control system for Widgets?4. Item X is a standard item stocked in a company’s inventory of component parts. Each yearthe fi rm, on a random basis, uses about 2,000 of item X, which costs $25 each. Storagecosts, which include insurance and cost of capital, amount to $5 per unit of average inventory.Every time an order is placed for more of item X, it costs $10.a. Whenever item X is ordered, what should the order size be?b. What is the annual cost for ordering item X?c. What is the annual cost for storing item X?5. In the past, Taylor Industries has used a fi xed–time period inventory system that involvedtaking a complete inventory count of all items each month. However, increasing laborcosts are forcing Taylor Industries to examine alternative ways to reduce the amount oflabor involved in inventory stockrooms, yet without increasing other costs, such as shortagecosts. Here is a random sample of 20 of Taylor’s items.ItemNumberAnnualUsageItemNumberAnnualUsage12345678910$ 1,50012,0002,20050,0009,6007502,00011,00080015,00011121314151617181920$13,00060042,0009,9001,20010,2004,00061,0003,5002,900a. What would you recommend Taylor do to cut back its labor cost? (Illustrate using anABC plan.)b. Item 15 is critical to continued operations. How would you recommend it be classifi ed?