THEORY

Chapter 5: Procurement

• Content 2 - Sourcing Decisions

• Content 3 - Supplier Decisions

• Content 4 - Procurement Cycle

Chapter 6: Inventory Management

• Content 1 - Inventory System

• Content 3 - Replenishment Policies

Chapter 7: Warehouse & Material Handling

• Content 1 - Overview

• Content 3 - Warehouse Decisions

• Content 4 - Material Handling

• Content 4 - Packaging
 EXCERCISE

Type 1: ORDER QUANTITY/ ORDER SIZE

Q1. A company purchases a product from a supplier who offers quantity discounts to
encourage larger order quantities. The category manager of the store wants to
determine the optimal order quantity to minimize the total annual cost. The store’s
annual demand forecast for the item is 5000 units, its order cost is $49 per order, and
its annual holding rate is 20%. The discount price is summarized below:

ORDER QUANTITY (UNITS) PRICE PER UNIT

1 – 999 $5.00

1000 – 2499 $4.85

2500+ $4.75

What is the optimal order quantity that the store should order to minimize its total
annual cost?

Q2. A supplier has introduced quantity discounts to encourage larger order quantities
of an item. The price schedule is

ORDER QUANTITY (UNITS) PRICE PER UNIT

0 – 299 $60.00

300 – 499 $58.80

500+ $57.00

The supplier estimates that its annual demand for the item is 936 units, its ordering
cost is $45 per order, and its annual holding cost is 25% of the item’s unit price. What
quantity of the item should the company order to minimize total costs?
 Type 2: MRP COMPUTATION

Company A assembles a cabinet from various components as shown in in Figure 1 -

the bill of materials (BOM). The gross requirements of the Cabinet are obtained from
master production schedule which are listed in Table 2. The components information
is given in Table 1. Please develop the MRP computations of the Cabinet and two
components: Side boards and Shelves.

Figure 1: Bill of Material (BOM) for a cabinet

Table 1: Components information

On hand
Components Scheduled Receipts Q LT SS
inventory
Level 0 – Cabinet 20 160 (Week 2) 80 2 0
Level 1 – Side boards 30 300 (Week 1) LFL 1 10
Level 1 – Shelves 20 260 (Week 1) LFL 1 20

The below table is a sample for MRP computation of level 0 – Cabinet.

Table 2: A sample for MRP computation of level 0 – Cabinet

Cabinet– Week Week Week Week Week Week Week Week Week Week Week Week
Level 0 1 2 3 4 5 6 7 8 9 10 11 12
Gross
120 95 200 25 60
Requirements
Scheduled
160
Receipts
On-hand
20
Inventory
Net
Requirements
Planned Order
Receipts
Planned Order
Releases