Dr. C. Kydd
BUAD 306
Exercise 6
Inventory/MRP
1.
Dee and Carol are owners of a company supplying tin cans to countries at war.
This war tin company has had a history of lack of control, particularly in the productioninventory area. Both Dee and Carol expect to sell 900 cases of tin cans over the next year
(300 days), but they are uncertain as to how they should procure and inventory the cans.
Dee prefers to order the cans from an outside supplier where he can obtain them
at $50.00 a case to be delivered within 2 days of an order. He estimates ordering cost at
$20.00/order. Annual carrying charges include 15% interest charge along with insurance
and taxes that amount to $2.50 per unit of average inventory (these are two separate
costs).
Carol prefers to produce the cans internally. She claims that the company has the
capacity to produce 6 cases a day. The setup cost (ordering) and carrying costs remain
the same as if the cans were purchased outside.
a. What would be the inventory policy if Dee’s scheme is followed?
b. What would be the inventory policy if Carol’s scheme is followed?
c. Which would you recommend and why?
d. Suppose Dee finds a dealer that will give him a 2% discount if he orders more
than 900 cases at a time. Would your recommendation change? Explain.
e. Suppose that Carol wants to investigate the possibility of backordering cases of
cans. She estimates that the stockout cost would be only $.50 per case per year.
What is Carol’s optimal inventory policy in this case?
f. What is your final suggestion to Dee and Carol concerning the inventory policy
that they should adopt? Why?
Illustrate each of the above inventory policies with the appropriate diagrams.
2.
A product has the following bill of materials:
A. Final Product
2B Assembly
3H
Part
2C Assembly
D Sub
Assembly
F Raw
Material
2E
Part
3G
Raw
Material
F Raw
Material
3E
Part
You also have the following information:
Item
A
B
C
D
E
F
G
H
On
Hand
500
1000
1000
300
500
2000
400
2500
Time to
Produce
1
1
1
1
1
3
2
2
Receipts:
Scheduled
Quantity
1000
1000
6000
4000
To be received
in week:__
1
2
1
2
Prepare an MRP schedule for all of the components in the product to cover an
8-week planning horizon. Estimated demand for the final product is 3000 units in
Week 7 and 4500 units in Week 8.
