Case Ch10 Answers

1. What is the annual cost of MoonChem MoonChem’s ’s strategy strategy of sending sending full full truckload truckloadss to each customer in the Peoria region to replenish consignment inventory? MoonChem’s customer profile appears in Table 1!" and is reproduced belo#$ Customer  Type %mall Medium *arge

 Number of  of  Customers 1& ( &

Consumption (Pounds per Month) 1' )' 1&'

+ach truck has a fi,ed capacity of "' pounds and costs MoonChem -" per delivery. The %mall customers use only 1&' pounds per year' so a "' truckload represents better than a three year supply Total policy cost is obtained using a /0"'' /0"' ' an %0-"' and an hC 0 &)23-13. TC  =

SD Q

TC Small  =

+

&

-" -"1&' 1&' 3 3 "' 

TC  Medium = TC  Large =

hCQ

+

-" -"( ( ' 3 3 "' 

-" -"1"" 1""' 3 3 "' 

&)2 &)233-1 -13"' 3"'  & +

+

= -)'1&

&)23 &)23-1 13"' 3"'  & &)23 &)23-1 13"' 3"'  &

= -)'( = -('""

4actoring in the number of each class of customers$ -)'1& × 1& + -)' (× ( + -(' "" ""× & = -15' 6& &. Consider Consider different different deliver delivery y options options and evaluate evaluate the cost cost of each. What What delivery delivery option do you recommend for MoonChem? MoonChem has the option of scheduling multiple deliveries on a single truck #ith a base charge of -7) for the truck and -) for each delivery the truck makes8 truck capacity remains at "' pounds. p ounds. Three alternatives that students might consider include creating a 9supergroup: of o f all customer deliveries on a single truck' creating three groups consisting of customers #ithin each class' and creating t#o groups consisting of one large' three medium' and si, small customers each. Costs for each of these alternatives are e,amined e, amined in turn. ;lternative 1$ The %upergroup The supergroup approach has a total annual demand of 56&' pounds of the  base chemical and #ould incur a shipping cost of -7) = =

 Di hC i

1

=

& S >

1""''  1"" -1 -13 3&)2 &)233 + 7( 7(''  -1 13&)2 3&)233 + &' &'3 3-1 -13& 3&)2 )233 &-17)3

= .)(

This number of shipments per year re=uires a truck capable of holding far more than "' pounds8 dividing 56&' pounds by the "' pound truck capacity sets the number of orders per year at 16.. +ach truck #ill hold 1""'@16.05'&57 pounds for the small customers8 7('@16.01'1& pounds for the medium customers' and &'@16.01"')") pounds for the large customers to be divided e=ually among the number of customers in each siAe range. Cycle inventory across all customers in each class is half of the order =uantity and results in annual holding costs of -66' -&&57' and -11 for small' medium' and large respectively -)' total3. The annual ordering o rdering cost of this policy is 16. orders3-17)@order3 0 -&('57. Total plan cost is -)' = =

∑i

 Di hC i

1

=

& S >

1""'-13&)23 &-6)3

= ".7) k 

>

n Medium = =

∑i

 Di hC i

1

=

& S >

7('-13&)23 &-()3

= .7& k 

>

n Large = =

∑i

 Di hC i

1

=

& S >

&'-13&)23

= .6"

&-")3

The optimal number of shipments for the Medium customers cu stomers re=uires a capacity greater than "' per truck' so dividing 7(' pounds by "' pounds@truck indicates that 6 orders per year is practical. The actual order siAes for each class and the resultant holding and ordering costs c osts are sho#n in the table$ Class %mall Medium *arge

Order Size 77'& "' 7&'166

Holding Cost -"'17) -)' -"'&)

Ordering Cost   - " '1 7) - ) ' )  - " ' & )

The total plan cost is -&5'15 ;lternative 7$ T#o groups #ith ( %mall' 7 Medium' and 1 *arge customer each +ach group has an annual demand of 76(' and an ordering cost %0-). k 

>

n = =

∑i

 Di hC i

1

=

& S >

5&' 5&'  -1 -13 3&)2 &)233 + 1' 1'-1 13&) 3&)23 23 + 1""' 1""'3 3-1 -13 3&)2 &)233 l &-)3

= 5.(7

This ordering fre=uency e,ceeds truck capacity8 dividing group demand by "' pounds per truck gives 6.6 orders annually. Plan specifics appear in the table$ Class %mall Medium *arge

Order Size 5'&57 1'1& 1"')")

Holding Cost - 6 6 -&'&57 -1'1

Ordering Cost  

-)6.63&3 0 -1('7

The total plan cost is -&('7 ;lternative 7 is -7" cheaper than ;lternative & and both are over -"' cheaper than ;lternative 1.

7. Bo# does your recomme recommendati ndation on impact consignment consignment inventor inventory y for MoonChem MoonChem?? The consignment inventory drops significantly from its initial levels. The current system' #ith each customer ordering in lots of "' pounds has a cycle inventory of &' pounds for each of the & sites' resulting in a system!#ide cycle inventory of "' pounds ;lternative 1 has a cycle inventory of "'@& 0 &' pounds ;lternative & has a cycle inventory of 77'&