SPRING 2022

Assignment No.2

Supply Chain Management - MGMT614

Due Date: 31st August, 2022

Premise:
Muneeb Ltd. deals in the selling of different LCD units in the local market of Multan. The

demand of LCD units is recorded at 1,000 units per month. The company incurs a fixed order

placement, transportation, and receiving cost of Rs 60,000 each time the order is being and

received. The cost of each LCD unit that firm incurs is Rs. 50,000 and retailer has a holding cost

of 20 percent of the price of each unit of the product.

Assignment Questions:

Based on the above information, you are advised to solve the following questions:

 Determine the optimal order size (Marks:4)

 Compute the cycle inventory (Marks:3)

Compute the number of orders the company has to incur every year (Marks:3)

Solution: -

Given Data

Demand Per month = 1000

Demand per Annual = 1000 × 12

Demand per Annual = 12000

Cost of each LCD = 50000

Retailer holding Cost = 12% each unit of product

Part 1: Determine the optimal order size

Answer: -

Optimal lot size

Q* =
√ 2 DS
hc

where

D = Annual Demand

S = fixed cost per order

C = Cost per unit

H = Holding Cost

Q* =
√2 ×12000 × 60000
50000 × 0.20

Q* = 379.47

Q* = 380 units

Part 2: Compute the cycle inventory (Marks:3)

Answer

Life cycle inventory = lot size/ 2 = Q / 2

=380 / 2

=190 units

Part 3: Compute the number of orders the company has to incur every year (Marks:3)

Answer: -

Orders per year = annual requirement / Q

= 12000 / 380

=31. 57 = 32 orders