MGTS 352 Inventory Exercise The 'Try to Have Just One' (THJO) sunflower seed company roasts and seasons sunflower seeds (in shell). For their production, they require a specific type of oil that they source from a local supplier; the leadtime on orders is 3 days. The oil comes in a box that is lined with plastic and costs $72. Demand averages 100 boxes per day, with a standard deviation of 26 (assume that they run production 365 days/year). Ordering is done by a Procurement Specialist working at THJO and requires checking with the Production department to see if there are any plans that might cause a sudden change in demand, creating a purchase order (PO), transmitting the purchase order by email and following up with the supplier, and then processing the product receipt and invoice when the product arrives. A recent study by the procurement department estimates a total administrative cost of $30 per PO (independent of order quantity). The accounting and finance department has requested that a rate of 19% be used when determining holding costs of inventory (this includes cost of capital, insurance, variable storage, and other costs that vary with the amount of inventory on hand). For the sake of this analysis, ignore seasonality in demand, and any quantity discounts or transportation costs. Currently, they order 500 boxes when inventory reaches 350 boxes. 1. Diagram their current ordering policy in a "sawtooth" diagram that clearly labels the order quantity, reorder point, safety stock, and lead time. Start time zero with the maximum inventory on hand at any point. 2. Fill in the table below for their current inventory policy and the optimal policy, based on the EOQ model. Current Policy Optimal Policy (EOQ) Order Quantity Annual Ordering Costs Annual Holding Costs Total Costs MGTS 352 Inventory Exercise The 'Try to Have Just One' (THJO) sunflower seed company roasts and seasons sunflower seeds (in shell). For their production, they require a specific type of oil that they source from a local supplier; the leadtime on orders is 3 days. The oil comes in a box that is lined with plastic and costs $72. Demand averages 100 boxes per day, with a standard deviation of 26 (assume that they run production 365 days/year). Ordering is done by a Procurement Specialist working at THJO and requires checking with the Production department to see if there are any plans that might cause a sudden change in demand, creating a purchase order (PO), transmitting the purchase order by email and following up with the supplier, and then processing the product receipt and invoice when the product arrives. A recent study by the procurement department estimates a total administrative cost of $30 per PO (independent of order quantity). The accounting and finance department has requested that a rate of 19% be used when determining holding costs of inventory (this includes cost of capital, insurance, variable storage, and other costs that vary with the amount of inventory on hand). For the sake of this analysis, ignore seasonality in demand, and any quantity discounts or transportation costs. Currently, they order 500 boxes when inventory reaches 350 boxes. 1. Diagram their current ordering policy in a "sawtooth" diagram that clearly labels the order quantity, reorder point, safety stock, and lead time. Start time zero with the maximum inventory on hand at any point. 2. Fill in the table below for their current inventory policy and the optimal policy, based on the EOQ model. Current Policy Optimal Policy (EOQ) Order Quantity Annual Ordering Costs Annual Holding Costs Total Costs
