Essay on Logistics 3

Submitted By MihaLes
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Pages: 3
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1. Using the data on the two part numbers given, provide a comprehensive evaluation of the ordering policies. Compare the present annual average cost with the cost of using a system such as EOQ, and discuss any other order policies as appropriate.
Analysis:
The table will is showing a comparison of the present annual average cost with the cost of using EOQ for parts A233 circuit board and P656 powder supply respectively.

Conclusion:
From the table we can see that cost of EOQ less than the present annual average cost. EOQ order policy can help Carl’s company minimize their annual total spent, and optimize their ordering cost and inventory holding cost. (…)

2. Should Carl’s pursue the price break? Why or why not?
If Carl would order 200 or more at a time then the unit cost will reduce $16.

Conclusion:
We would recommend to pursue price break for A233 circuit board if demand of Carl’s computer is constant. It will help to reduce the total annual cost by $3,375.36. (…)

3. What do you think the sources of the other problems are? Be specific and analyze as completely as possible.
The source of the problems is a weak inventory management system, there are several problems:
1. Demand and forecast management/planning. Certain parts are often out of stocks and inventory level are too high. (…)
2. Write off cost. Due to obsolete stocks (80%) (…)
3. No safety stocks policy. (…)
4. Inappropriate order/purchase policy. The order/purchase policy should be flexible and base on the actual inventory situation to order. (…)
5. Ineffective inventory monitoring system. Records go to pot because transactions weren’t filling. (…)

Appendix
Appendix 1
Calculations for A233 circuit board
Present:
Holding cost/unit=Unit cost x 23%=$18x23%=$4.14/unit
Total material cost= Annual demand x unit cost=1664 unitsx$18/unit=$29,952
Total holding cost=Average Inventory (Lot size/2)* Holding cost/unit=$132.48
Total ordering cost= (Annual demand/ Lot size)* Order cost=$416
Present annual average cost=Total material cost + Total holding cost +Total ordering cost=$29,952+$132.48+$416=$30,500.48
EOQ method:
EOQ= (2 x Annual demand x Order Cost /Holding Cost)^0.5=114 units (lot size/ order)
Total material cost= Annual demand x unit cost=1664 unitsx$18/unit=$29,952
Total holding cost=Average Inventory( EOQ/2)* Holding cost/unit=$235.98
Total ordering cost= (Annual demand/ EOQ)*Order cost=$233.54
Cost of using EOQ=Total material cost + Total holding cost +Total ordering
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