OMM Case Study
Group A case study: Carl’s Computer
Annual average cost between A233 circuit board and P656 power supply.
Formula,
EOQ = √ (2 × D × Co) / IC
CC = (Q / 2) IC CC
CO = (D / Q) CO
TC = CO + CC
R = D / Q × LT
Information given as below:
A233 circuit board
Average weekly usage = 32 units
Annual demand, D = 32 units × 52 weeks = 1664 units
Lead time = 1 week
Cost per unit, CC = $18
Order cost, CO = $16
Quantity to fill the bin = 64 units
Inventory holding cost, IC = 23% = 23% × $18 = $4.14 per circuit board
Annual average cost as follows:
CO = (1664 / 64) $16 = $416.00
CC = (64 / 2) 23% × $18 = $132.48
TC64 = $416.00 + $132.48 = $548.48
EOQ = √ (2 × 1664 × 16) / 4.14 = 113.41
Now, Q is 113 units of circuit board per year
When Q is 113 units,
CO = (1664 / 113) 16 = $235.61
CC = (113 / 2) 23% × 18 = $233.91
TC 113= $235.61+ $233.91 = $469.52
R = 1664 / 113 × 7 days = 103 units
Annual saving cost = $548.48 - $469.52 = $78.96.
According the EOQ analysis, the company is able to save $78.96
P656 Power Supply
Average weekly usage = 120 units
Annual demand, D = 120 units × 52 weeks = 6240 units
Lead time = 2 weeks
Cost per unit, CC = $35
Order cost, CO = $2
Quantity to fill the bin = 350 units
Inventory holding cost, IC = 23% = 23% × $35 = $8.05 per circuit board
Annual average cost as follows:
CO = (6240 / 350) 2 = $35.66
CC = (350 / 2) 23% × $35 = $1408. 75
TC350 = $35.66 + $1408. 75 = $1444. 41
EOQ = √ (2 × 6420 × 2) / 8.05 = 56.48
Now, Q is 56 units of power supply per year
When Q is 56 units,
CO = (6240 / 56) 2 = $222.86
CC = (56 / 2) 23% × $35 = $225.40
TC56 = $222.86 + $225.40 = $448.26
R = 6240 / 56 × 14 days = 1560 units
Annual saving cost = $1444. 41- $448.26 = $996.15
According the EOQ analysis, the company is able to save $996.15
A supplier might able to give a circuit board price break of $2 per board if Carl’s would order 200 or more at a time.
Total spent = CO + CC + IC
TS113 = (1664 / 113) 16 + (113 / 2) 23% × 18 + (32 × 52 × 18) =
Annual average cost between A233 circuit board and P656 power supply.
Formula,
EOQ = √ (2 × D × Co) / IC
CC = (Q / 2) IC CC
CO = (D / Q) CO
TC = CO + CC
R = D / Q × LT
Information given as below:
A233 circuit board
Average weekly usage = 32 units
Annual demand, D = 32 units × 52 weeks = 1664 units
Lead time = 1 week
Cost per unit, CC = $18
Order cost, CO = $16
Quantity to fill the bin = 64 units
Inventory holding cost, IC = 23% = 23% × $18 = $4.14 per circuit board
Annual average cost as follows:
CO = (1664 / 64) $16 = $416.00
CC = (64 / 2) 23% × $18 = $132.48
TC64 = $416.00 + $132.48 = $548.48
EOQ = √ (2 × 1664 × 16) / 4.14 = 113.41
Now, Q is 113 units of circuit board per year
When Q is 113 units,
CO = (1664 / 113) 16 = $235.61
CC = (113 / 2) 23% × 18 = $233.91
TC 113= $235.61+ $233.91 = $469.52
R = 1664 / 113 × 7 days = 103 units
Annual saving cost = $548.48 - $469.52 = $78.96.
According the EOQ analysis, the company is able to save $78.96
P656 Power Supply
Average weekly usage = 120 units
Annual demand, D = 120 units × 52 weeks = 6240 units
Lead time = 2 weeks
Cost per unit, CC = $35
Order cost, CO = $2
Quantity to fill the bin = 350 units
Inventory holding cost, IC = 23% = 23% × $35 = $8.05 per circuit board
Annual average cost as follows:
CO = (6240 / 350) 2 = $35.66
CC = (350 / 2) 23% × $35 = $1408. 75
TC350 = $35.66 + $1408. 75 = $1444. 41
EOQ = √ (2 × 6420 × 2) / 8.05 = 56.48
Now, Q is 56 units of power supply per year
When Q is 56 units,
CO = (6240 / 56) 2 = $222.86
CC = (56 / 2) 23% × $35 = $225.40
TC56 = $222.86 + $225.40 = $448.26
R = 6240 / 56 × 14 days = 1560 units
Annual saving cost = $1444. 41- $448.26 = $996.15
According the EOQ analysis, the company is able to save $996.15
A supplier might able to give a circuit board price break of $2 per board if Carl’s would order 200 or more at a time.
Total spent = CO + CC + IC
TS113 = (1664 / 113) 16 + (113 / 2) 23% × 18 + (32 × 52 × 18) =
References: Value Added n.d http://www.investopedia.com/terms/v/valueadded.asp (Accessed 10 Sept, 2013) Value stream mapping n.d Value stream mapping n.d. http://www.institute.nhs.uk/quality_and_service_improvement_tools/quality_and_service_improvement_tools/process_mapping_-_value_stream_mapping.html (Accessed 10 Sept, 2013) Just in time (business) n.d Quality assurance n.d. http://en.wikipedia.org/wiki/Quality_assurance (Accessed 17 Sep, 2013) Six Sigma n.d Continuous Improvement n.d. http://asq.org/learn-about-quality/continuous-improvement/overview/overview.html (Accessed 18 Sep 2013)