Please show calculations!

304 Chapter 9: Inventory Management APPLY YOUR UNDERSTANDING Delta Products Inc. Apply Your Understanding 305 opted her teen quantities she calculated. Nikki was extremely pleased when she realized she could save Delta almost $7,000 per year in just one department if it adopted her recommended economic order quantities. After rechecking her calculations, she was convinced of the validity of her analysis and couldn't wait to see the plant manager's reaction to her report. She was actually hoping that the plant manager would be impressed enough with her work to offer her a full-time position upon graduation. The final spreadsheet she developed to summarize the potential savings to Delta is shown next. to see the p laculations, she C D TAC Current Batch Delta Products makes a line of door hardware including doorknob sets and deadbolts. Its product line is particularly well known for excellent quality, a high level of security, and ease of installation Delta hired Nikki Scott, a first-year MBA concentrating in operations management, for one of its summer internships. Her task was to spend the summer analyzing the operation and usage of the large transfer press, the plant's current bottleneck machine. The transfer press stamps out the doorknobs used in Delta's door hardware and is available 2000 hours per year for this task. At the end of the summer, in a report to the department manager and plant manager, Nikki was to submit her recommendations for improving the operation of the transfer press Nikkl spent the first week familiarizing herself with the operation of the transfer press by observing and questioning the machine operator. By the end of the first week, she determined that Delta uses six unique doorknobs in its door hardware. She decided that her next task was to get an estimate of the annual demand for the knobs. She studied Delta's product catalogs and determined which products each knob was used in Next, she got from the sales manager a copy of a spreadsheet that contained the complete sales figures for each product over the last 3 years. After casually looking over the data, she observed that the sales were remarkably stable over the 3-year period. Nicki added formulas to the spreadsheet to average the sales data over the 3-year period and to calculate the number of knobs of each type that were used. With her analysis of the demand for knobs completed, Nikki turned her attention to the actual production of the knobs. She spent the next couple of weeks collecting data on the individual processing times of the knobs on the transfer press, the time required to set up the press to produce a new batch of knobs, and the production batch sizes currently being used. She also worked closely with the cost accountant to determine the cost of holding knobs in inventory, and she found that machine operators are paid $15 per hour, includ- ing fringe benefits. Nicki summarized the information for her report in the following spread- sheet Size 5 Item knob Knob B Knob c Current Economic Batch Order Stre Quantity 1500 586 1500 328 1500 741 2000 662 1500 477 2000 923 1904 1262 7 Knob D 2039 2810 3026 2567 1105 3469 2729 9 2448 Knob E Knob F 10 2005 2077 12 Total 18705.1 11736.98 14 Annual Savings $6,968.12 C D E Unit Setup Annual Annual Processing time Holding Cost Current (hours) (5/unit) Barch Size Item Knob A Demand 6,000 62 3.25 1500 lysis t 3.85 he tracks are cremelyben On the Monday of her last week, Nikki met with the plant manager, Joe Thomas, and the press department manager, Mike Willis. After complimenting Nikki on a very thorough and well-written report, Joe asked Mike what his reaction was. Mike commentede also was very impressed with the thoroughness of Nida's analysis. The data that she collected on setup times, production times, and holding costs are the best data we have ever had about our operations. Unfortunately, while I have not had a chance to thoroughly run the numbers, I think there is a problem with Nikki's analysis. Her analysis requires significant reductions in our batch stres, while I agree that we could suve money by cutting the batch sizes, the fact of the matter is that the transfer press she analyzed is one of our major bottlenecks. We are currently using every second of the 2000 hours we have available on the machine. Cutting the lot sizes as NO as suggested will require more ups, and we simply don't have the time for additional setups. Nikki was quite distraught by the outcome of the meeting She still had a week left in her Internship, and she desperately wanted to salvage the work she had spent an entire summer working on. She was determined to spend her final week finding a way to save Delta money while at the same time not exceeding its available capacity. Knob B Knob C Knob D Knob E Knob F 6 7 8 19 7.2 Time (hours) 0.0500 0.0420 0.0400 0.0380 0.0375 0.0480 3,000 7.000 10,000 8,400 9,400 1500 1500 2000 1500 6.8 2000 Questions Her next task was to analyze the information she had compiled and look for ways to improve the operation. Given the information she had available, she began by developing a spreadsheet to calculate the economic order quantity (EOC). She then developed another spreadsheet to compare the total annual cost(TAC) of using the current batch sizes with the economic order 1. Verify Nikki's calculations of the economic order quantity and total annual cost. 2. Is Mike's intuition correct that using Nikki's economic order quantities will exceed the 2000 hours of capacity available on the transfer press? 3. Are there any opportunities for Delta to save money without exceeding its available capacity 304 Chapter 9: Inventory Management APPLY YOUR UNDERSTANDING Delta Products Inc. Apply Your Understanding 305 opted her teen quantities she calculated. Nikki was extremely pleased when she realized she could save Delta almost $7,000 per year in just one department if it adopted her recommended economic order quantities. After rechecking her calculations, she was convinced of the validity of her analysis and couldn't wait to see the plant manager's reaction to her report. She was actually hoping that the plant manager would be impressed enough with her work to offer her a full-time position upon graduation. The final spreadsheet she developed to summarize the potential savings to Delta is shown next. to see the p laculations, she C D TAC Current Batch Delta Products makes a line of door hardware including doorknob sets and deadbolts. Its product line is particularly well known for excellent quality, a high level of security, and ease of installation Delta hired Nikki Scott, a first-year MBA concentrating in operations management, for one of its summer internships. Her task was to spend the summer analyzing the operation and usage of the large transfer press, the plant's current bottleneck machine. The transfer press stamps out the doorknobs used in Delta's door hardware and is available 2000 hours per year for this task. At the end of the summer, in a report to the department manager and plant manager, Nikki was to submit her recommendations for improving the operation of the transfer press Nikkl spent the first week familiarizing herself with the operation of the transfer press by observing and questioning the machine operator. By the end of the first week, she determined that Delta uses six unique doorknobs in its door hardware. She decided that her next task was to get an estimate of the annual demand for the knobs. She studied Delta's product catalogs and determined which products each knob was used in Next, she got from the sales manager a copy of a spreadsheet that contained the complete sales figures for each product over the last 3 years. After casually looking over the data, she observed that the sales were remarkably stable over the 3-year period. Nicki added formulas to the spreadsheet to average the sales data over the 3-year period and to calculate the number of knobs of each type that were used. With her analysis of the demand for knobs completed, Nikki turned her attention to the actual production of the knobs. She spent the next couple of weeks collecting data on the individual processing times of the knobs on the transfer press, the time required to set up the press to produce a new batch of knobs, and the production batch sizes currently being used. She also worked closely with the cost accountant to determine the cost of holding knobs in inventory, and she found that machine operators are paid $15 per hour, includ- ing fringe benefits. Nicki summarized the information for her report in the following spread- sheet Size 5 Item knob Knob B Knob c Current Economic Batch Order Stre Quantity 1500 586 1500 328 1500 741 2000 662 1500 477 2000 923 1904 1262 7 Knob D 2039 2810 3026 2567 1105 3469 2729 9 2448 Knob E Knob F 10 2005 2077 12 Total 18705.1 11736.98 14 Annual Savings $6,968.12 C D E Unit Setup Annual Annual Processing time Holding Cost Current (hours) (5/unit) Barch Size Item Knob A Demand 6,000 62 3.25 1500 lysis t 3.85 he tracks are cremelyben On the Monday of her last week, Nikki met with the plant manager, Joe Thomas, and the press department manager, Mike Willis. After complimenting Nikki on a very thorough and well-written report, Joe asked Mike what his reaction was. Mike commentede also was very impressed with the thoroughness of Nida's analysis. The data that she collected on setup times, production times, and holding costs are the best data we have ever had about our operations. Unfortunately, while I have not had a chance to thoroughly run the numbers, I think there is a problem with Nikki's analysis. Her analysis requires significant reductions in our batch stres, while I agree that we could suve money by cutting the batch sizes, the fact of the matter is that the transfer press she analyzed is one of our major bottlenecks. We are currently using every second of the 2000 hours we have available on the machine. Cutting the lot sizes as NO as suggested will require more ups, and we simply don't have the time for additional setups. Nikki was quite distraught by the outcome of the meeting She still had a week left in her Internship, and she desperately wanted to salvage the work she had spent an entire summer working on. She was determined to spend her final week finding a way to save Delta money while at the same time not exceeding its available capacity. Knob B Knob C Knob D Knob E Knob F 6 7 8 19 7.2 Time (hours) 0.0500 0.0420 0.0400 0.0380 0.0375 0.0480 3,000 7.000 10,000 8,400 9,400 1500 1500 2000 1500 6.8 2000 Questions Her next task was to analyze the information she had compiled and look for ways to improve the operation. Given the information she had available, she began by developing a spreadsheet to calculate the economic order quantity (EOC). She then developed another spreadsheet to compare the total annual cost(TAC) of using the current batch sizes with the economic order 1. Verify Nikki's calculations of the economic order quantity and total annual cost. 2. Is Mike's intuition correct that using Nikki's economic order quantities will exceed the 2000 hours of capacity available on the transfer press? 3. Are there any opportunities for Delta to save money without exceeding its available capacity