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EOQ, Annual Order, Time between orders & Total Annual Inventory Cost

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Southwood Furniture Company is a U.S.-based furniture manufacturer that offshored all of its actual manufacturing operations to China about a decade ago. It set up a distribution center in Hong Kong from which the company ships its items to the United States on container ships. The company learned early on that it could not rely on local Chinese freight forwarders to arrange for sufficient containers for the company's shipments, so it contracted to purchase containers from a Taiwanese manufacturer and then sell them to shipping companies at the U.S. ports the containers are shipped to. Southwood needs 715 containers each year. It costs $1200 to hold a container at its distribution center, and it costs $6000 to receive an order for the containers. Determine the optimal order size, minimum total annual inventory cost, number of annual orders, and time between orders.

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Solution Preview

1.Opitmal Order Size/ Economic Order Quantity = (2*F*D/C)^(1/2)

F = Fixed Cost per order
D = Demand for the year
C = holding Cost

Then,

EOQ = ...

Solution Summary

The solution computes EOQ, Annual Order, Time between orders, and Total Annual Inventory Cost for Southwood Furniture Company.

$2.19
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Inventory costs: (a) Determine the optimal order quantity, the time between orders and the annual inventory cost.
(b) Determine the difference in annual inventory costs between the optimal policy and the current policy of placing two orders every month.

A company assembles motherboards which contain the Enterprise chip. The company uses 9,000 Enterprise chips each year. The supplier of the chips imposes a £5 delivery charge on each order. The chips have to be stored in a freezer resulting in a high holding cost which has been estimated at £0.48 each per month.
(a) Determine the optimal order quantity, the time between orders and the annual inventory cost.
(b) Determine the difference in annual inventory costs between the optimal policy and the current policy of placing two orders every month.
(c) The purchase cost of the Enterprise chip is usually £10 each. However, a new chip is due to be announced shortly and so a discount on the Enterprise is being offered. On orders of over 150, the price is reduced to £8. Another supplier of the Enterprise chip has been found who is selling the chip for £9 but with no discount for large orders.
Which supplier should be used and what is the annual inventory cost for that supplier?

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