Operational management

Assignment 3
Group: Blizzard
Submitted to: Sayeedul Karim Lecturer MGT-314 (Production and Operation Management) Section: 4

Submitted by: Tanweer Sumaiya Khan -1030583530 Nazla Naim Subha -1020547030 Samiha Islam Sharna Keya Debnath Naziat Karim -1020162030 -1020047030 -1020070030

North South University

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Q1) D=750 S=$160 per order H=30% Suppose the vendor gives the following discounts: $7<450 $5 =450 or more

EOQ=Q*= [(2*D*S)/h*c]

[(2*750*160)/0.30*5]

=400 [not within the discount range of the lowest cost , 450 or more $5]

EOQ=Q*= [(2*D*S)/H]

= [(2*750*160)/0.30*7]

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=338.06 =338 less than 450

$7 [ within the discount range of $7]

Order Price(C quantity ) (Q) 5 400 7 338

Annual purchasing cost(D*C) 750*5=$3750

Annual ordering cost(D/Q)*S (750/400)*160 =$300 750*7=$5250 (750/338)*160 =$355

Annual holding cost (Q/2*h*c) 400/2*0.3*5 =$300 338/2*0.3*7 =$355

Annual total cost $4350 $5960

Same because EOQ is used

Lowest cost associated ordering quantity is 338 units. We should buy 338units at a time because lowest cost associated ordering quantity is 338 units.

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Q2) Oakwood Hospital is considering using ABC analysis to classify laboratory SKUs into three categories Class A: those that will be delivered daily from their supplier Class B:those that will be controlled using a continuous review system Class C:those that will be held in a two bin system. The following table shows annual dollar usage for a sample of eight SKUs. Rank the S/kus and assign them to their appropriate category:

SKU 1 2 3 4 5 6 7 8

Dollar Value $0.01 $0.03 $0.45 $1.00 $4.50 $0.90 $0.30 $1.50

Annual usage 1200 120,00 100 44,000 900 350 70,000 200 Annual Dollar Value $44,000 $21,000 $4,050 $3,600 $315 $300 $45 $12 $73,322 % of total Cumulative % of $ values 60.0% 60.00% 28.7% 88.7% 5.5% 94.2% 4.9% 99.1% 0.4% 99.5% 0.4% 99.9% 0.1% 100.0% 0.0% 100.0% Cumulative class % of SKU 12.5% 25.0% 37.5% 50.0% 62.5% 75.0% 87.5% 100.0% A A B B c c c c

Solution:

SKU Annual Unit usage cost 4 7 5 2 6 8 3 1 44,000 70,000 900 120,000 350 200 100 1200 $1.00 $0.30 $4.50 $0.03 $0.90 $1.50 $0.45 $0.01

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The dollar usage percentage dont exactly match the prediction of ABC analysis. For example class A SKUs account for 88.7% of the total ,rather than 80%. Nonetheless the important finding is that ABC analysis did find a significant few. For the item sampled particularly close control is nedded for SKUs 4 and 7.

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