Eastern Electric (EE) is a major appliance manufacturer with a large plant in the Chicago area. EE purchases all the motors for its appliances from Westview Motors, located near Dallas. EE currently purchases 120,000 motors each year from Westview at a price of $120 per motor. Demand has been relatively constant for several years and is expected to stay that way. Each motor averages about 10 pounds in weight, and EE has traditionally purchased lots of 3,000 motors. Westview ships each EE order within a day of receiving it (lead time is one day more than transit time). At its assembly plant, EE carries a safety inventory equal to 50 percent of the average demand for motors during the replenishment lead time The plant manager at EE has received several proposals for transportation and must decide on the one to accept. The details of various proposals are provided in Table 14-4, where one cwt equals 100 pounds. Golden's pricing represents a marginal unit quantity discount (see Chapter 11). Golden's representative has proposed lowering the marginal rate for the quantity over 250 cwt in a ship- ment from $4/cwt to $3/cwt and suggested that EE increase its batch size to 4,000 motors to take advantage of the lower transportation cost. What should the plant manager do? The calculations of the yellow highlighted values are shown in the example, read the example and understand it then show the calculations of all values inside the rectangular, the Lot size values are given as shown below TABLE 14-5 Alternative AM Rail Northeast Golden Golden Golden Golden Golden (old proposal) Golden (new proposal) Analysis of Transportation Options for Eastern Electric Lot Size Transportation Cycle Safety (Motors) Cost Inventory Inventory 2,000 $78,000 1,000 986 1,000 $90,000 500 658 500 $96,000 250 658 1,500 $96,000 750 658 $86,400 1,250 658 3,000 $80,000 1,500 658 4,000 $72,000 2,000 658 In-Transit Inventory 1,644 986 986 986 986 986 986 Inventory Cost $ 108,900 $64,320 $56,820 $71,820 $86,820 $94,320 $109,320 Total Cost $186,900 $154,320 $152,820 $167.820 $173,220 $174,320 $181,320 2.500 CES 4,000 $67,500 2,000 658 986 $109,320 $176,820 given show the calcualtion of all values above Eastern Electric (EE) is a major appliance manufacturer with a large plant in the Chicago area. EE purchases all the motors for its appliances from Westview Motors, located near Dallas. EE currently purchases 120,000 motors each year from Westview at a price of $120 per motor. Demand has been relatively constant for several years and is expected to stay that way. Each motor averages about 10 pounds in weight, and EE has traditionally purchased lots of 3,000 motors. Westview ships each EE order within a day of receiving it (lead time is one day more than transit time). At its assembly plant, EE carries a safety inventory equal to 50 percent of the average demand for motors during the replenishment lead time The plant manager at EE has received several proposals for transportation and must decide on the one to accept. The details of various proposals are provided in Table 14-4, where one cwt equals 100 pounds. Golden's pricing represents a marginal unit quantity discount (see Chapter 11). Golden's representative has proposed lowering the marginal rate for the quantity over 250 cwt in a ship- ment from $4/cwt to $3/cwt and suggested that EE increase its batch size to 4,000 motors to take advantage of the lower transportation cost. What should the plant manager do? The calculations of the yellow highlighted values are shown in the example, read the example and understand it then show the calculations of all values inside the rectangular, the Lot size values are given as shown below TABLE 14-5 Alternative AM Rail Northeast Golden Golden Golden Golden Golden (old proposal) Golden (new proposal) Analysis of Transportation Options for Eastern Electric Lot Size Transportation Cycle Safety (Motors) Cost Inventory Inventory 2,000 $78,000 1,000 986 1,000 $90,000 500 658 500 $96,000 250 658 1,500 $96,000 750 658 $86,400 1,250 658 3,000 $80,000 1,500 658 4,000 $72,000 2,000 658 In-Transit Inventory 1,644 986 986 986 986 986 986 Inventory Cost $ 108,900 $64,320 $56,820 $71,820 $86,820 $94,320 $109,320 Total Cost $186,900 $154,320 $152,820 $167.820 $173,220 $174,320 $181,320 2.500 CES 4,000 $67,500 2,000 658 986 $109,320 $176,820 given show the calcualtion of all values above
