Manufacturing and Economic Order Quantity

Manufacturing and Economical Order Quantity Essay Test

(This case appears in the particular textbook on pages 463-464 in the second edition and page 464 of typically the third edition. I have got changed the British £ sign to the U. S. $ sign about the monetary data. An individual can use U. H. $ for all financial answers. ) FabQual Limited. Manufactures parts and subassemblies for a number associated with small-volume manufacturers of specific construction equipment, including bulldozers, graders, and cement mixers. FabQual also manufactures and distributes spare parts. The company has made a specialized of providing spare parts for equipment no longer in production; this consists of wear parts that are will no longer in production for any kind of OEM. The Materials Supervision Group (MMG) orders elements – both for shipping to a customer’s manufacturing line and for frees – from the Manufacture Department. Spares are filled within a Finished Goods Shop. FabQual’s part number 650810/ss/R9/o is a wear component made only for extras demand. It has got demand averaging 300 models weekly for more than a year, and this amount of demand is expected to persist for in least 4 more yrs. The standard deviation of weekly demand is 50 units. (You can overlook this standard deviation information. You do not need to job with it for your questions I have asked. ) The MMG has been ordering 1300 units month to month of part number 650810/ss/R9/o from the Fabrication Division to meet the prediction annual demand of fifteen, 600 units.

The order is placed within the first week of each month. To present Manufacture with scheduling flexibility, since well as to help with planning raw substance requirements, a 3-week producing lead time is allowed for parts. In the Fabrication Department, 2 hours is now brought about each setup for a work of part number 650810/ss/R9/o. Now includes strip-down regarding the previous setup; shipping and delivery of raw materials, drawings, resources and fixtures, etc; in addition to buildup from the new setup. The 2-hour setup period is a recent development over the previous 4 hours, as the result associated with setup reduction activities in the Fabrication Department. The Fabrication Department charges $20 per hour for setups. Part number 650810/ss/R9/o makes its way into the Finished Goods Shops in a full manufacturing expense of $55. The Financial Office takes a 25% for each item annually cost for inventory planning and manage. (This will be your annual having cost rate).


1. Calculate the total annual price of the present ordering policy for part quantity 650810/ss/R9/o. second . Calculate the particular lot size for part number 650810/ss/R9/o if FabQual were to use an economic order quantity (EOQ). 3. Calculate the overall annual expense of using a great economic order quantity with regard to part number 650810/ss/R9/o? some. Determine the reorder stage for part number 650810/ss/R9/o if demand was always occurring at the standard rate of 300 units per week. 6. Determine the cost implications of a change from the existing scheme to one based on the economic order volume.


Write a report to be able to the director of the Materials Management Group (MMG) in which you provide your recommendations on how this inventory part (part number 650810/ss/R9/o) should be managed. Provide rationale regarding your recommendations (your rationale will come from typically the above calculations).