EZworks is a major manufacturer and distributor of office furniture. The company has outsourced production of...

Transcribed Image Text:

EZworks is a major manufacturer and distributor of office furniture. The company has outsourced production of its most popular office chair, the model WOW3, to a manufacturer in Sri Lanka, at a cost of OMR 77 per unit. An analysis of the purchasing records shows that approximately 3.2 labor hours are consumed in processing a purchase order for the chairs, regardless of the quantity ordered. Salaries in the Purchasing Department average OMR 15.5 per hour, including employee benefits. In addition, a detailed analysis of the past 20 purchase orders for these chairs showed that OMR 132.5 was spent on telephone, paper, and other consumables directly related to the ordering process. Shipping cost from Sri Lanka is OMR 7XX per shipment of up to 500 chairs (see guidelines above to obtain a numerical value for 7XX). EZwork's financial analysts have established a holding cost of 35%. The lead time from the supplier in Sri Lanka is variable. Data for lead times from the past 35 orders is provided in the file EZleadtime.xls. The EZworks company is willing to accept a service level that allows no more than 0.5 stockouts per year. Annual demand for the WOW3 chair is known to be constant at a rate of 7040 units. Current practice at the company is to place a re-stock order once every month. The factory in Sri Lanka and EZworks both operate 300 days per year. Part A (12 points) 1. What is the ordering cost? (1) 2. What reorder point would you recommend for EZworks to implement in managing inventory of the WOW3 chair? (1) 3. How much safety stock must be kept in order to achieve the company's service guidelines of no more than 0.5 stockouts per year? (1) 4. What is the annual total inventory variable cost under the company's current policy? (1) 5. The company wants to receive each new shipment of WOW3 chairs from the supplier on the first day of each month. How many days earlier in the previous month must EZworks place its order, so that the service level of 0.5 stockouts per year is maintained (give your answer in terms of working days). (1.5) 6. What is the optimal order quantity for the WOW3 chair? (1) 7. State the optimal inventory policy. (0.5) 8. What is the total annual inventory cost under the optimal inventory policy, and how much savings does the Company achieve by implementing the optimal policy over the existing policy of ordering once a month? (1) 9. EZworks is looking at a different supplier in Thailand. This new supplier offers discounts based on the quantity demanded in each EZworks purchase order. The table below provides the pricing schedule. Quantity 0-200 201 - 600 601 - 1000 More than 1001 Price per unit (OMR) 78.00 77.00 76.00 75.00 EZworks is a major manufacturer and distributor of office furniture. The company has outsourced production of its most popular office chair, the model WOW3, to a manufacturer in Sri Lanka, at a cost of OMR 77 per unit. An analysis of the purchasing records shows that approximately 3.2 labor hours are consumed in processing a purchase order for the chairs, regardless of the quantity ordered. Salaries in the Purchasing Department average OMR 15.5 per hour, including employee benefits. In addition, a detailed analysis of the past 20 purchase orders for these chairs showed that OMR 132.5 was spent on telephone, paper, and other consumables directly related to the ordering process. Shipping cost from Sri Lanka is OMR 7XX per shipment of up to 500 chairs (see guidelines above to obtain a numerical value for 7XX). EZwork's financial analysts have established a holding cost of 35%. The lead time from the supplier in Sri Lanka is variable. Data for lead times from the past 35 orders is provided in the file EZleadtime.xls. The EZworks company is willing to accept a service level that allows no more than 0.5 stockouts per year. Annual demand for the WOW3 chair is known to be constant at a rate of 7040 units. Current practice at the company is to place a re-stock order once every month. The factory in Sri Lanka and EZworks both operate 300 days per year. Part A (12 points) 1. What is the ordering cost? (1) 2. What reorder point would you recommend for EZworks to implement in managing inventory of the WOW3 chair? (1) 3. How much safety stock must be kept in order to achieve the company's service guidelines of no more than 0.5 stockouts per year? (1) 4. What is the annual total inventory variable cost under the company's current policy? (1) 5. The company wants to receive each new shipment of WOW3 chairs from the supplier on the first day of each month. How many days earlier in the previous month must EZworks place its order, so that the service level of 0.5 stockouts per year is maintained (give your answer in terms of working days). (1.5) 6. What is the optimal order quantity for the WOW3 chair? (1) 7. State the optimal inventory policy. (0.5) 8. What is the total annual inventory cost under the optimal inventory policy, and how much savings does the Company achieve by implementing the optimal policy over the existing policy of ordering once a month? (1) 9. EZworks is looking at a different supplier in Thailand. This new supplier offers discounts based on the quantity demanded in each EZworks purchase order. The table below provides the pricing schedule. Quantity 0-200 201 - 600 601 - 1000 More than 1001 Price per unit (OMR) 78.00 77.00 76.00 75.00

Answer rating: 100% (QA)

The image contains the details of a case study for EZworks a manufacturer and distributor of office furniture that has outsourced the production of a popular office chair WOW3 to a manufacturer in Sri ... View the full answer