Operation Management
1. A product used in a laboratory of the hospital costs $60 to order, and its carrying cost per item per week is one cent. Demand for the item is six hundred units weekly. The lead time is three weeks and the purchase price is $0.60.
a. What is the economic order quantity for this item?
b. What is the length of the order cycle?
c. Calculate the total weekly costs.
d. What is the investment cost for this item?
e. If ordering costs increase by 50 percent, how would that affect EOQ?
f. What would be the reorder point for this item if no safety stock were kept?
g. What would be the reorder point if one thousand units were kept as safety stock?
2. SURGERY ASSOCIATES, a local surgery practice group, orders implants from device manufacturers. Order quantities for ten items have been determined based on the past two years of usage. Other relevant information from the practice's inventory records is depicted in Table EX 11.6. The practice is functional for fifty-two weeks a year.
a. Perform basic EOQ analysis for each item.
b. Classify the implant inventory items according to the ABC analysis.
c. Calculate the yearly inventory management cost.
d. Determine the investment cost (per cycle) for each item.
TABLE EX
|
Implant Item No
|
Yearly Demand (Unit/Year)
|
Unit Cost
|
Yearly Carrying Rate of Each Item
|
Ordering Cost
|
|
1
|
104
|
2,225
|
12%
|
6.00
|
|
2
|
260
|
5,000
|
10%
|
5.00
|
|
3
|
728
|
3,550
|
8%
|
12.00
|
|
4
|
1,248
|
1,205
|
12%
|
28.00
|
|
5
|
104
|
11,100
|
2%
|
18.00
|
|
6
|
1,040
|
1,500
|
20%
|
32.00
|
|
7
|
780
|
1,900
|
11%
|
50.00
|
|
8
|
884
|
3,700
|
9%
|
12.00
|
|
9
|
780
|
6,400
|
2%
|
35.00
|
|
10
|
520
|
2,700
|
5%
|
12.00
|