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Posted on February 20, 2017

Operations Management Help 04

Problem 1:
Hershey Office Supply, Inc. produces office supplies that are sold primarily to corporate users. Elizabeth Rigby, vice president of logistics, would like to move ahead on a project that was started about a year ago. At that time, a group of logistics analysts developed a list of stock-keeping units (SKUs) and their annual sales (data is provided in an Excel file named “ISOM 319_Assignment 3_Q1.xlsx” posted in the same folder).
 
She would like to develop tighter inventory controls for SKUs. Your task is to prepare the following analysis for her.
 
a. Classify the SKUs in the list as A, B, or C items based on their annual sales revenues, where A items generate the first 80 percent of the revenues, B items generate the next 15 percent, and C items generate the remaining 5 percent.
 
b. Prepare a report that summarizes the SKU count, the percent of total SKUs, the sum of annual sales, and the percent of total sales by class (A, B, and C).
 
c. Develop an x-y scatter chart showing the cumulative percent of items (x) and the cumulative percent sales (y).
 

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Problem 2:
A large bakery opens 365 days per year and buys flour in 25-pound bags. The bakery uses an average of 48,600 bags a year. Preparing an order and receiving a shipment of flour involves a cost of $100 per order. Monthly carrying costs are $1 per bag.

a. Determine the economic order quantity.
Suppose that the economic order quantity that you calculate in Part 1 is used to order by the bakery, answer the following questions:
 
b. What is the average number of bags on hand?
 
c. How many orders per year will there be?
 
d. Compute the total cost of ordering and carrying flour.
 
e. The bakery’s flour delivery lead time is 3 days. What is their re-order point?
Suppose due to warehouse capacity issues, the bakery can only hold a maximum of 500 bags of flour at any given time:
 
f. How much more do they have to pay for inventory costs compared to when they can order the EOQ?

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