Operations and Supply Chain Management The Core

290 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
In computing holding costs per week, divide H by 52. Weekly holding cost is $0.10 per unit. We
can now develop an order schedule based on EOQ lot sizing.
WEEK
NET
REQUIREMENTS
PRODUCTION
QUANTITY
ENDING
INVENTORY
HOLDING
COST
SETUP
COST
TOTAL
COST
1 105 444 339 $33.90 $100.00 $133.90
2 80 0 259 25.90 0.00 159.80
3 130 0 129 12.90 0.00 172.70
4 50 0 79 7.90 0.00 180.60
5 0 0 79 7.90 0.00 188.50
6 200 444 323 32.30 100.00 320.80
7 125 0 198 19.80 0.00 340.60
8 100 0 98 9.80 0.00 350.40
Least Total Cost (LTC)
Similar to the example in Exhibit 9.16, we can create the following table comparing costs for
ordering 1 through 8 weeks’ demand in the first order.
WEEKS
NET
REQUIREMENTS
PRODUCTION
QUANTITY
HOLDING
COST
SETUP
COST
TOTAL
COST
1 105 105 $ 0.00 $100.00 $100.00
1−2 80 185 8.00 100.00 108.00
1−3 130 315 34.00 100.00 134.00
1−4 50 365 49.00 100.00 149.00
1−5 0 365 49.00 100.00 149.00
1−6 200 565 149.00 100.00 249.00
1−7 125 690 224.00 100.00 324.00
1−8 100 790 294.00 100.00 394.00
7 125 125 0.00 100.00 100.00
7−8 100 225 10.00 100.00 110.00
For the first order, the difference between holding and setup costs is least when ordering for weeks
1 through 6, so the first order should be for 565 units, enough for weeks 1–6. For the second order,
we need to consider only weeks 7 and 8. The difference between holding and setup costs is least
when placing a second order to cover demand during weeks 7–8, so the second order should be
for 225 units. Note that as we move through time and net requirements for weeks 9 and beyond
become known, we would revisit the second order based on those new requirements. It is likely
that the best second order will end up being for more than just weeks 7 and 8. For now, we can
develop an order schedule based on the data we have available.
WEEK
NET
REQUIREMENTS
PRODUCTION
QUANTITY
ENDING
INVENTORY
HOLDING
COST
SETUP
COST
TOTAL
COST
1 105 565 460 $46.00 $100.00 $146.00
2 80 0 380 38.00 0.00 184.00
3 130 0 250 25.00 0.00 209.00
4 50 0 200 20.00 0.00 229.00
5 0 0 200 20.00 0.00 249.00
6 200 0 0 0.00 0.00 249.00
7 125 225 100 10.00 100.00 359.00
8 100 0 0 0.00 0.00 359.00
Least Unit Cost (LUC)
The LUC method uses calculations from the LTC method, dividing each option’s total cost by the
order quantity to determine a unit cost. Most of the following table is copied from the LTC method,
with one additional column to calculate the unit costs.