QUESTIONS:

Q#1: What is the total cost difference between Ferguson’s proposal to order 4 cases each time and Powell’s proposal to order 32 cases each time? Explain your results.

Q#2: Lewin suggested looking at economic order quantity (EOQ). Based on the lowest total annual cost, what order quantity should Martin recommend? What is the resulting total cost when using the EOQ (do not include the unit purchase price)? What is the cost difference compared to the Ferguson and the Powell proposals? Explain your results.

Q#3: Let’s explore the concept of “robustness.” Lewin’s proposal to use economic order quantity may be unrealistic since CMC would like to place orders in whole cases. If the order quantity is decreased to the nearest whole case (which is a 2.78% reduction) what is the new total annual cost and what percent would your total annual cost change? What is the new total annual cost and what percent would your annual total cost change if the order quantity is increased to the nearest whole case? Hint: Use the formula [New Total Cost / Old Total Cost].

Q#4: Powell has been working with the information technology department to implement some new Robotic Process Automation (RPA) scripts which will decrease the time required to place purchase orders. Powell estimates that if the new RPA processes are put in place, the cost of placing a purchase order will decrease to \$32. What impact will this change have on the total annual cost for the sample item?

Q#5: Based on these 4 different evaluations of the appropriate order quantity, what do you recommend? Explain your recommendation.

Q#6: Calculate Reorder Point for each of the above 5 scenarios. Assume supplier lead-time to be 10 days? What is your observation?

Sample Solution