EOQ & POQ Workshop

Operation management Class

EICEA
Universidad de La Sabana

1. The demand for Manantial water at the Éxito Colina is 600 litres per week. The setup cost
for placing an order to replenish inventory is $25. The order is delivered by the supplier
which charges to Éxito $0.10/liter for the cost of transportation from the plant to Éxito la
Colina. This transportation cost increases the cost of water to $1.25/liter. The water loses
its freshness while stored. To account for this, Éxito la colina charges an annual holding cost
of $2.6/liter. The lead time of the supplier is 1 week.

Determine how often the Exito should order for water and what size each order should be,
the reorder point and the total annual cost.

2. In the Company AIR Co. A new purchasing manager has arrived. In the Company, there is no
information about the demand. The information that the new purchasing manager is able
to has is that the order setup cost with is $200 and the annual inventory holding cost is $400
per year. Also, he has accidentally learned that the Company is ordering 10 air conditions
every time. Show how this new manager can use this information to deduce the demand.

3. Green Light Inc. is a company that sells flashlights. The provider mentions that if he makes
a larger purchase he could give you a discount on the cost of the unit, according to the next
table:

Cost per unit

Range
($/U)
From 1 to 1,499 units 20
From 1,500 to 2,000 units 18
2,001 units or more 15

To make a decision, the Green Light Inc. purchasing manager must choose an alternative
that minimizes the cost of inventory, taking into account that the fixed ordering cost is $60
per order, anual demand is 35.000 flashlights and the transference rate is 10%.

4. In Tienda Embarcadero - Universidad de La Sabana, one of the main products is the

Cheesecake brownie. They have estimated a demand per month of 1625 units. The blondy
(monis) knows that each order to the supplier takes 2 weeks to arrive and has a cost of
$18520/order. She also knows that the holding cost per each 100 brownies is $20.000 per
year and she must be carefull because that product has a shelf life (fecha de vencimiento)
 of 1 month, so she can’t have in stock more units than the demand of that period of time.
According to the information and taking into account a transference rate of 10% per year:

a. How many brownies should the blondie ask per order to the supplier taking into account
all the constraints? (Support your answer with numbers and explain it)
b. How many orders does she have to place per month?
c. Compute the total cost per month of the transaction.
d. How many brownies is going to hold the monis in average per month?
e. How many brownies should have in stock the blondy in order to ask for more products to
the supplier?

5. A local assembler of cars produces the reference MT-200 that is a traditional compact car
and MT-300 Plus, that is a traditional sedan vehicle. They produce every month 540 units of
MT-200 model and 450 units of MT-300 Plus. For the production process, they need a
reference of tire called R14 for the MT-200 model and R16 for the MT-300 Plus. In adidtion,
each car needs a spare tire which reference is R12 (The same for both models). They buy
all the tires to an old supplier according to the list in table A, in where is the price of each
reference and the respective transference rate that they have. The ordering cost is $500 per
order always because the supplier is the same. If the lead time of the supplier is 3 weeks.

Table A
Transf. Rate
Tire reference Price ($/U)
in (%/week)
R12 100 0,375
R13 150 0,375
R14 200 0,1
R15 250 0,1
R16 300 0,05
R17 350 0,05

Calculate:
a. Economic Order Quantity for the local assembler.
b. The total number of orders that they have to place per year
c. Reorder point of all the references
d. Compute the average inventory that the local assembler has
e. How much money is paying this company as Total cost per year?

6. Every hour, 100 students from the U. Sabana must travel by bus from the Central Campus
to the Eastern Campus (Fab Lab and “Canchas nuevas de Bienestar Universitario”). The
university has defined a cost of $ 5 for each hour or fraction of hour that a student has to
wait for the bus. It costs to the university $ 10 to ask for a bus. If all buses have the same
capacity and always carry the same number of students, define:

How many buses will depart per hour from the Central Campus to the Eastern Campus?
How often would a bus leave from the Central Campus to the Eastern Campus?
Make the graphical analysis using the inventory graph
 A POQ EXERCISE:

7. A local company produces a programmable EPROM (erasable programmable read-only

memory) for several industrial clients. They have experienced a relatively flat demand of
2500 units per year for the product. The EPROM is produced at a rate of 10000 units per
year. The accounting department has estimated that it costs $50 to initiate a production
run, each unit costs the company $2 to manufacture, and the cost of holding is based on a
30% annual transference rate. Determine the optimal size of a production run, and the
average annual cost of holding.