Quetsion3 Glacier Limited has been running the operating successfully over the last 20 years. However, in recent times with the global health pandemic, the company is facing difficulties in operation. To ease the difficulties the company is planning to review its inventory management policy in the production department. For the coming year, the estimated annual demand (sales) represents a reduction of 10% from previous year sales of 86,000 units. The carrying cost of inventory of 25% of the purchase price of the inventory. Glacier Limited usually purchase raw materials at an average price of $ 3.80 per unit. However, for the next year, the unit purchase price of raw materials is likely to increase by 10%. The fixed cost related to the processing of the order is estimated to be $300. Glacier places orders in multiples of 500 units. From the above first-hand information taken from the production department, suggest Chris Dewar, the head of procurement and logistic team the optimum order size (EOQ) to minimize the total cost of managing inventory for Glacier? What is the total cost of inventory at that level? Given the current difficulties in supply chain management, production manager Martin Greg believes that the firm should order at a higher quantity to remove the concern of supply shortage. Moreover, Glacier can enjoy a 1.75% price discount for each time purchase of 14,500 units instead of EOQ. Should the firm still order at EOQ? [2+3+3] Quetsion3 Glacier Limited has been running the operating successfully over the last 20 years. However, in recent times with the global health pandemic, the company is facing difficulties in operation. To ease the difficulties the company is planning to review its inventory management policy in the production department. For the coming year, the estimated annual demand (sales) represents a reduction of 10% from previous year sales of 86,000 units. The carrying cost of inventory of 25% of the purchase price of the inventory. Glacier Limited usually purchase raw materials at an average price of $ 3.80 per unit. However, for the next year, the unit purchase price of raw materials is likely to increase by 10%. The fixed cost related to the processing of the order is estimated to be $300. Glacier places orders in multiples of 500 units. From the above first-hand information taken from the production department, suggest Chris Dewar, the head of procurement and logistic team the optimum order size (EOQ) to minimize the total cost of managing inventory for Glacier? What is the total cost of inventory at that level? Given the current difficulties in supply chain management, production manager Martin Greg believes that the firm should order at a higher quantity to remove the concern of supply shortage. Moreover, Glacier can enjoy a 1.75% price discount for each time purchase of 14,500 units instead of EOQ. Should the firm still order at EOQ? [2+3+3]
