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Business Operations Inventory Management

1. Initially, assume that Phil wants to minimize his inventory requirements. Assume that each
order will be only for what is required for a single period.
Engine Assembly Master Schedule
Weeks
1
2
3
4
5
6
7
8
9
10
11
12
Quantity
15
5
7
10
15
20
10
8
2
16
Gear Box Requirements
1
2
3
4
5
6
7
8
9
10
11
12
15
5
7
10
15
20
10
8
2
16
2
2
5
5
10
15
20
10
8
2
16
5
10
15
20
10
8
2
16
Input Shaft Requirements
1
2
3
4
5
6
7
8
9
10
11
12
10
20
30
40
20
16
4
32
30
32
32
2
22
38
20
16
4
32
38
20
16
4
32
2. Phil would like to consider the costs that his accountants are currently using for inventory
carrying and setup for the gearbox and input shafts. These costs are as follows:
Part
Cost
Gear Box
Setup = $90/order
Inventory carrying cost =
$2/unit/week
Input Shaft
Setup = $45/order
Inventory carrying cost =
$1/unit/week
Given the cost structure, evaluate the cost of the schedule from (1). Assume inventory is valued
at the end of each week.
Gear Box
Setup Cost = 8 x 90 = $720
Inventory = 4 x 2 = $8
Total = $728
Input Shaft
Setup Cost = 5 x 45 = $225
Inventory = 96 x 1 = $96
Total = $321
Total Cost = $1,049
3. Calculate a schedule using least-total-cost lot sizing. What are the savings with this new
schedule?
Engine Assembly Master Schedule
Weeks
1
2
3
4
5
6
7
8
9
10
11
12
Quantity
15
5
7
10
15
20
10
8
2
16
Gear Box Requirements
1
2
3
4
5
6
7
8
9
10
11
12
15
5
7
10
15
20
10
8
2
16
2
2
10
30
10
18
16
5
26
5
10
45
20
10
8
2
16
15
10
45
15
26
2
Input Shaft Requirements
1
2
3
4
5
6
7
8
9
10
11
12
30
90
52
10
32
32
22
58
52
58
52
Gear Box
Setup Cost = 3 x 90 = $270
Inventory = 88 x 2 = $176
Total = $446
Input Shaft
Setup Cost = 2 x 45 = $90
Inventory = 74 x 1 = $74
Total = $164
Total Cost = $610

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