Instituto Tecnolgico y de Estudios Superiores de Monterrey, Campus Estado de Mxico

CEM.IN2020.1.1713.17506: Inventory Management (Gp 1)

Teacher: Vctor Anastacio Villegas Solorio
Csar Vzquez Arzate (A01370849), Rodrigo Andrs Ros Abarca (A01376658)
August 28 of 2017
Yearly demand, average daily demand rate, and daily production rate for both cases
= 3200

3200
= = 12.8
250

1000(12)
= = 48
250

Cost per unit (c)

Case 1 $18
Case 2 $17

1. An analysis of the holding costs, including the appropriate annual holding cost rate.
Annual cost for holding inventory as %-Interest Rate (i) for both cases
Use of funds for the investment within the
14%
company.
Taxes and insurance related to the companys 24000
inventory. (100) = 4%
600000
9000
Lost due to inventory shrinkage. (100) = 1.5%
600000
15000
Warehouse overhead. (100) = 2.5%
600000
Total Interest Rate 22%

2. An analysis of ordering costs, including the appropriate cost per order from the supplier.
Cost per order in $/order (Setup-S) - Case 1
$2375
Telephone, paper, and postage. = $19/
125
Purchasing salaries average. $28(2) = $56/
Total Setup $75/

3. An analysis of setup costs for the production operation.

Cost per order in $/order (Setup-S) - Case 2
Cost of labor and lost production. $50(8) = $400/
Total Setup $400/
 4. A development of the inventory policy for the following two alternatives:
a. Ordering a fixed quantity Q from the supplier
b. Ordering a fixed quantity Q from in-plant production

5. Include the following in the policies of parts 4(a) and 4(b)

Case 1-4(a)

a. Optimal quantity Q*

2 2(3200)(75)
= = = 348.16
0.22(18)

b. Number of order or production runs per year

250 9.17
=
27.25

c. Cycle time (expressed in working days)

348.16
= = 0.109
3200

= 0.109(250) = 27.25
d. Reorder point

e. Amount of safety stock

f. Expected maximum inventory

12.8
= (1 ) = 348.08 (1 ) = 255.26
48

g. Average inventory
348
= = = 174.08
2 2
h. Annual holding costs
348.16(0.22)(18)
= = = $689.35
2 2
i. Annual ordering costs
3200(75)
= = $689.33
348.16
 j. Annual cost of the units purchased or manufactured
= 3200(18) = $57600

k. Total annual cost of the purchase policy and the total annual cost of the production policy
3200(75) 348(0.22)(18)
= + = + = $1378.68
2 348 2
= 3200(18) + 1378.68 = $58978.68

Case 2-4(b)

a. Optimal quantity Q*

2 2(3200)(400)
= = = 966.12
12.8
(1 ) 0.22(17) (1 48 )

b. Number of order or production runs per year

250
= 3.31
75.5

c. Cycle time (expressed in working days)

966.12
= = 0.302
3200
= 0.302(250) = 75.5

d. Reorder point

e. Amount of safety stock

f. Expected maximum inventory

12.8
= (1 ) = 966.12 (1 ) = 708.49 units
48
g. Average inventory
966.12
= = 483.06
2 2
h. Annual holding costs
708.49(0.22)(17)
= = = $1324.87
2 2
i. Annual ordering costs
3200(400)
= = $1324.88
966.12
j. Annual cost of the units purchased or manufactured

= 3200(17) = $544000

k. Total annual cost of the purchase policy and the total annual cost of the production policy
3200(400) 966.12(0.22)(17)
= + = + = $2649.75
2 966.12 2
= 3200(17) + 3094.25 = $57049.75

6. Make a recommendation as to whether the company should purchase or manufacture the

part. What savings are associated with your recommendation as compared with other
alternative?
The company should manufacture the part, since even when the annual ordering and holding costs are
greater than when it buys the part, the amount of money saved by making the part at a cost per unit of
$17 reduce the total money spent in the investment for this process in $1928.93.