Question #4:

GIVE EXCEL SHEET ANSWERS OR SOLUTIONS .

Avery owns four large dealerships in the metropolitan area. Each of these locations currently keepsinventory of required components used for repairs of the cars. Each location is also using EOQ to place order with the supplier. As an alternative, it is possible for the company to order the requirements for the entire company from the supplier at one location and keep all the high-priced parts at this location. The company can then deliver to the other three locations within one hour every day. The cost of space and the delivery vehicle is negligible but the labor cost of the driver for making these deliveries will be $75 per day. You have been hired as a supply chain consultant to help Avery in making this decision. Use the following data to calculate the total relevant costs of both the current and the proposed scenario:

Average Price of the High Priced Components = $150

Annual Demand for the High Priced Components = 25,000 items per location

Number of Work Days = 250 per year

Annual Holding Costs = 30% per year

Fixed Costs of placing an order with the manufacturer = $150 per order

a) What is the current EOQ and the current annual total inventory cost (ignore the item cost) for each of the four locations? What is the annual total inventory cost of Avery?

b) If the alternative proposal is used, what will be the EOQ and the annual total inventory cost (ignore the item cost)for Avery?

c) Compare the saving in annual Inventory cost with the increase in driver delivery cost to the three dealerships and make your conclusion.