The Omega Appliance Company assembles refrigerators for export, and the compressor units used in the model C6 refrigerator are purchased from international suppliers. An analysis of the purchasing operation shows that approximately 1.5 hours are required to process a purchase order, regardless of the quantity purchased. Salaries in the purchasing Department average OMR 20 per hour, including employee benefits. In addition, a detailed analysis of 30 previous purchase orders showed that OMR 434 was spent on telephone, paper, and other consumables directly related to the ordering process. Also, the company’s financial analysts established a holding cost of 22%.
The annual demand for the compressors is constant at 7700 units, and the assembly plant operates 350 days per year. The lead time for the compressors is variable. Data for lead times from the past 55 orders is provided in the file LT.xls. Currently, the company has a contract to purchase the compressors from the supplier at a cost of OMR 38 per unit, and it is using a policy of replenishing its inventory with order quantities of 750 compressors. Service level guidelines indicate that 0.5 stockouts per year is acceptable.
Part A
1. What is the ordering cost?
2. Assuming that the lead time data sample (LT.xls) in your possession is large enough, determine whether the lead time is normally distributed or not.
3. Calculate the current annual total inventory cost under the company’s current policy.
4. What is the company’s current service level?
5. Which model should be used to find the best inventory policy? Justify your answer.
6. Determine the optimal order quantity.
7. How much safety stock is recommended for the company to carry?
8. State the optimal inventory policy.
9. What is the total annual inventory cost?
10. How much savings does the Company achieve by implementing the optimal policy?
11. The most recent order for compressors has been placed on Sunday April 22, 2018 at 8:00a.m. What is the probability that the order will not have arrived by the end of Friday April 27, 2018?
12. The Omega Company is considering moving their business to a new compressor supplier. This new supplier offers the following pricing schedule.
Should the Omega Appliance Company switch to the new supplier? Justify your response based on total costs.
Part B- Make or Buy?
The Omega Appliance Company’s in-house production capacity has been expanded, and as a result, excess capacity is now available in the Production Department. The company is now studying the possibility of making the compressors in their own plant, rather than purchasing from external suppliers. The available capacity allows for production of compressors at the rate of 800 units per month, and the production costs are expected to be OMR 22.5 per unit. The setup for a production run requires four hours, with a cost for labor and lost production time of OMR 75 per shift hour.
13. What is the optimal order quantity if the company manufactures the compressors in its own facility?
14. What will the maximum inventory be?
15. How many production runs will be done every year?
16. What is the duration of each production run?
17. What is the total annual cost of this “Make” policy?
18. Should the Company “Make” or “Buy” the compressors? Justify your recommendation.
Part C-Uncertain Demand
Assume that the Omega Appliance Company had decided against in-house production of compressors. After one year of operations, the company finally reached agreement with suppliers to ensure a constant lead time of 5 days. However, the company also realized that daily demand for the compressors exhibited some variability, with the mean annual demand still at 7700 units, but with a standard deviation of 120 compressors.
19. The company has decided on a service level of 99%. Accordingly, what size of safety stock should be kept to cope with the uncertainty of demand?
20. Determine the total annual inventory cost under this 99% service level inventory policy.
21. In a first assessment of the new policy, the company managers concluded that the type I service level is not enough information encompassing. What is meant by this?
22. Calculate the fill rate for a reorder level of 135 compressors?
23. What is the expected number of units short per cycle?
24. The Omega Electronics Company is planning to switch to a periodic review system where the stock-on-hand is reviewed at 12 noon every Friday. Analyze the prospective inventory system and help the company decide whether or not to shift to a periodic review system.
Do you need help with this assignment or any other? We got you! Place your order and leave the rest to our experts.