With the outbreak of COVID-19, the world is experiencing a severe shortage of ventilators for treating patients in hospitals. DBS is a manufacturer of ventilators in Melbourne. It uses a special component to make its top-of-the range ventilators. DBS requires an average of 24,000 units of this special component every year in its manufacturing process. The major supplier of the special component that DBS has been dealing with, is a preferred supply chain partner who charges a price per unit of $3000 for the component. Each order costs $500 to process. Because of limited storage space, the operations manager wants to factor in inventory holding cost at 13.75% of the unit cost. You have been asked to:
Question 1;

(1) Determine the economic order quantity (EOQ) and total annual cost if ordering the EOQ number of units. How much will DBS be able to save by adopting the EOQ versus a current Q = 400? What is the reorder point with safety stock if lead time is 21 days, standard deviation of weekly demand is 3.75 and on an average DBS operates for a total of 48 weeks every year? Assume a z value of 1.645 corresponding to the desired service level as specified in DBS’ operating procedures. What would the reorder point be without safety stock and how would you interpret each of the two reorder points?
(2) Environmental considerations, material losses and waste disposal can be included in the EOQ model to improve inventory management practices. Assume that on an average 7.5% of the components that DBS purchases are damaged in transit thus becoming unusable and have to be disposed of. Disposal cost is $250 per unit. Find the new EOQ and total annual cost when the disposal cost is considered. What implications does this have for the sustainability of DBS’ inventory practices?
(3) Explain the implications to the operations manager if estimates of setup (order) costs include fixed, semi-variable, and pure variable costs while inventory-holding costs includes only pure variable costs.

Question 2:

(1) The DBS operations manager has determined that their flagship product experienced 2 turns last year, with an annual sales volume (at cost) of $18,200,000. What was the average inventory value for this product last year? What would be the average inventory level if inventory turns could be doubled?
(2) You have been asked to evaluate DBS’s cash-to-cash conversion cycle under the following assumptions: sales of $25 million, cost of goods sold of $18.2 million, 48 operating weeks a year, total average on hand inventory of $9,100,000, accounts receivable equal to $11,455,000, and accounts payable of $12,695,000. What do you conclude? What can you recommend to improve performance?
(3) Explain to the DBS operations manager implications of a negative cash-to-cash conversion cycle.

Question 3:

(1) The operations manager of DBS thinks they can source some of their basic raw materials from overseas low-cost economies, which could lead to significant savings by reducing their purchasing costs. However, there is a risk that the quality of raw materials procured from those overseas, lowcost economies may not be as high as that provided by the current suppliers. If the quality of raw materials is not top notch, this can have an adverse effect on the quality of finished product that DBS sells to its customers. Most customers of DBS are returning customers with long-standing loyalty and they keep coming back as they trust the quality they get although DBS charges a higher price relative to its closest competitors. Using the interlinking model of quality and profitability, explain to the operations manager how ensuring a high product quality can actually help DBS enhance profitability.
(2) How can you convince the DBS operations manager that quality management concepts can help towards boosting sustainability efforts? Find some relevant examples to support your arguments.