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Inventory Management Example Problems with Solutions

UMass LowellCollege of SloanInventory Management Example Problems with auto parts supplier sells Hardy-brand batteries to car dealers and auto mechanics. The annual demandis approximately 1,200 batteries. The supplier pays $28 for each battery and estimates that the annualholding cost is 30 percent of the battery s value. It costs approximately $20 to place an order (managerialand clerical costs). The supplier currently orders 100 batteries per the ordering, holding, and total Inventory costs for the current order the economic order quantity (EOQ). many orders will be placed per year using theEOQ? the ordering, holding, and total Inventory costs for theEOQ. How has ordering costchanged? Holding cost ? Total Inventory cost ?SolutionWe are given the following information:annual demand:D= 1200 batteries per yearitem cost :c= $28 per batteryholding cost :H=ic= (28) = $ per battery per yearorder cost :S= $20 per ordercurrent order quantity:Q= 100 current ordering and holding costs are:DQS+Q2H=1200100(20) +1002( ) = 240 + 420 = $ = 2 DSH= 2 1200 76 company will placeDQ =120076= orders per new ordering and holding costs are:DQ S+Q 2H=120076(20) +762( ) = + =$ The company will save $ by using closer inspection, the supplier determines that the demand for batteries is normally distributed withmean 4 batteries per day a

and clerical costs). The supplier currently orders 100 batteries per month. a. Determine the ordering, holding, and total inventory costs for the current order quantity. b. Determine the economic order quantity (EOQ). c. How many orders will be placed per year using the EOQ? d. Determine the ordering, holding, and total inventory costs for the ...

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