This team assignment requires you to examine the costs and tradeoffs associated with inventory, its impact on a company’s supply chain. Later in the semester, we will return to some of these items to illustrate the direct correlations to a company’s income statement and balance sheet.
Please try your hand at the following inventory-related questions. Your principal sources for answering these questions are the Coyle, Chopra, and Lee readings. This assignment contains three questions.
Please be sure to answer the four questions and all subparts to each question.
In Coyle, the decision on how much to order is made to minimize the total inventory costs of the buyer. Total inventory costs include annual inventory carrying costs and annual inventory order placement costs. (Chopra includes a third cost, annual material cost, but for the purposes of this question, assume that there are no quantity discounts available, thus material costs are fixed per unit–meaning that annual material costs are the same regardless of order quantity.) The simple EOQ model under conditions of certainty is used to find the order size that minimizes the total inventory costs for the buyer.
a.) What is the principal inventory cost tradeoff in the simple EOQ fixed quantity model under conditions of certainty? Note that by “cost tradeoff”, I mean that as the value of a decision variable (for example, the order quantity Q) changes, one cost category increases while another cost category declines.
b.) Thus, your response to this question should identify the tradeoff as the cost(s) that increase as order size increases and
c.) the cost(s) that decline as order size increases.
d.) Your response should also give the reasons why a cost increases or decreases as the order size changes.
At the end of the article “Bullwhip Effect in Supply Chains” by Lee, et al. is Table 1 (below). In this table, Lee presents several initiatives, such as vendor-managed inventory, for counteracting the four causes of the Bullwhip Effect. (Causes are listed down the left side of the table and various initiatives are listed next to each cause. Utilize about 2 or 3 paragraphs for these answers to subpart a and 2 or 3 paragraphs for subpart b.
|Causes of Bullwhip||Information Sharing||Channel Alignment||Operational Efficiency|
|Demand Forecast Update||
What does your team think was the single major cause of the bullwhip effect that impacted grocery stores during the first six weeks (or so) of the COVID-19 Pandemic? List it and explain your rationale. Based upon your answer to Question 2 Subpart a…list what is the major initiative that could be used to help minimize the problem and explain what you think one impediment might be to successfully implementing it.
In completing your response, please be sure to show how you derived your answers so that partial credit may be given if necessary. For this problem, assume that the plant operates 365 days per year. Also, note the additional comments below for some questions. (The following questions come from Exercises 1 and 2 on page 282 of the Chopra reading Chapter 10, 4th Edition).
Harley-Davidson has its engine assembly plant in Milwaukee and its motorcycle assembly plant in Pennsylvania. Engines are transported between the two plants using trucks, with each trip costing $1000. The motorcycle plant assembles and sells 300 motorcycles each day. Each engine costs $500, and Harley incurs a holding cost of 20% per year.
a.) How many engines should Harley load on this truck?
b.) What is the total annual inventory cost for your answer in Exercise 1?
c.) What is the cycle inventory of engines at Harley?
d.) What is the average flow time resulting from cycle inventory at Harley? (See page 246/247 in Chopra. Caution: Be sure to look at the “Notes” on Chapter 10 in Chopra provided for clarification on the definition of the symbol “D” in Chopra). Download File: Notes on Chapter 10 Reading
As part of its initiative to implement Just-In-Time (JIT) manufacturing at the motorcycle assembly plant discussed above, Harley has reduced the number of engines loaded on each truck to 100. If each truck trip still costs $1000, How does the decision to lower the number of engines loaded on each truck impact the annual inventory costs at Harley? Remember that annual inventory costs for this problem consist of annual inventory ordering costs and annual inventory carrying costs.