EAST DELTA UNIVERSITY (EDU)

Final Exam. Summer 2020

School of Business
MBA 659: Supply Chain Management
Total Points: 30

(Solve Both the Problems Below)

Problem #1 Ordering Products Jointly (15 Points)

Fiolty de Femme, a French company, is recognized as well-established name for manufacturing high-end
customized bicycles for women. Some of their important manufacturing parts however are imported from
certain suppliers in China. Critical components such as Crank Gear, Chain, and Pulley Wheels are
imported from different suppliers to manufacturing plant of Fiolty. Recently, the company has sourced a
supplier who can provide all the three components at better quality and reasonable price. And for this very
reason the procurement head of the company has decided to order the three components jointly from the
same supplier. The monthly demand for Crank Gear is 800 units and priced at $35/unit; monthly
demand for Chain is 600 units and priced at $20/unit, and monthly demand for Pulley Wheels is 1600
units and priced at $15/unit. Each shipment would cost Fiolty $5,000/order that includes only
transportation cost. For each material ordered and delivered on the same vehicle, an additional fixed cost
of $1,000/order is incurred for import duty, receiving, administrative, and inspection. Fiolty incurs a
holding cost of 30% per year. Assuming yourself as procurement head of the company, your job would be
to help Fiolty to gather following relevant information to facilitate their decision making on joint
ordering.
Please find out:
a) The optimal lot size for each product
b) Cycle inventory
c) Order frequency (no. of orders)
d) Annual Holding Cost
e) Annual Ordering Cost
f) Average flow time (in days)
g) Total Annual Ordering & Holding Cost
*Formulas* (you may or may not require to use all the formulas)

𝑄 𝑄
∗
2𝐷𝑆
= √ ℎ𝐶 Average flow time =
∗
2
𝐷

𝑛∗𝐷𝐶𝐺
= ℎ𝐶𝐶𝐺 +𝐷𝐶 ℎ𝐶𝐶 +𝐷𝑃𝑊 ℎ𝐶𝑃𝑊 𝑆∗ = 𝑆 + + + 𝑠𝑃𝑊
√ 𝑠𝐶𝐺 𝑠𝐶
2𝑆∗

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 EAST DELTA UNIVERSITY (EDU)
Final Exam. Summer 2020
School of Business
MBA 659: Supply Chain Management
𝑇𝐶 = 𝐷 ) 𝑆 + 𝑄∗ ) ℎ𝐶 𝐴𝑛𝑛𝑢𝑎𝑙 𝑂𝑟𝑑𝑒𝑟 𝐶𝑜𝑠𝑡 = 𝑆 ∗ x n*
( (
𝑄∗ 2

No. of Order = D/Q*, Order Interval =Q*/D

Optimum Lot Size Q* = D / n*

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Problem #2: All Unit Quantity Discounts (15 Points)

Germin & Brothers (G&B), a retail store based in Chittagong is well established name for selling quality
ceiling fans to its clients for decades. Recently the company has decided to purchase a particular model of
fan from a supplier in China. For G&B, the supplier has the following offer:
Order Quantity Cost/Unit
0 - 499 $18.00
500 - 1199 $17.00
1200 - 1999 $16.50
2000 plus $16.00

G&B estimates the annual demand will be close to 2,000 units for this particular model of fans. Each
time an order is placed a fixed ordering cost of $600 is incurred in terms of order placement,
transportation, and receiving. G&B recently had to rent a new space to store fans and meet the huge
demand of its customers. In this regard, they are estimating the holding cost will be at least 50% of the
material cost of each fan. Consider yourself as the procurement manager for the company and make the
decision on the optimal lot size that G&B should order (every time they place an order). What would be
the total annual cost in this case?
Three possible cases for Qi

1. 𝒒𝒊 ≤ 𝑸𝒊 < 𝒒𝒊+𝟏
2. 𝑸𝒊 < 𝒒𝒊
3. 𝑸𝒊 ≥ 𝒒𝒊+𝟏

Formulas:

∗
𝟐𝑫𝑺
𝑸 =√
𝒉𝑪
𝑫
𝑸∗
𝑻𝑪 = 𝑪𝑫 + ( ∗ ) 𝑺 + ( ) 𝒉𝑪
𝑸 𝟐
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