Inventory Management Assignment: Calculating EOQ and Analyzing Inventory Systems

Introduction and Assignment Overview

This assessment covers the following learning outcomes from the module.

K1. Critical understanding of the key factors that underpin the development and implementation of financial models.

K2. Critical understanding of the key strengths and limitations of financial modelling.

K3. Critical understanding of theoretical concepts and frameworks intended to provide solutions to business problems

S1. Cognitive skills of critical thinking and analysis

S2. The ability to communicate effectively using written media

Outcomes Assessed: All module learning outcomes, knowledge and skills, are assessed in this assignment.

This assessment is in three parts, please answer all elements.

Please note that this is an individual assignment and the policy of the University on “Policy on Cheating, Collusion and Plagiarism” applies.

Please write your Tutor’s name clearly on the front of the assignment.

TV King Ltd is known for selling high quality plasma televisions that are imported from Japan. The annual demand for the A545 model of their 40” plasma TV is around 900 units. TV King Ltd incurs relatively expensive storage costs and it costs them £20 to hold one unit of stock per year. Due to the shipping distance, it costs £120 to place an order for TV King to replenish their stock. The company is open for business for 52 weeks a year but are closed every Sunday.

Required:

(a) Find the economic order quantity for the A545 Plasma TV. EOQ = √

(b) Based on the EOQ, calculate the number of deliveries per year and the number of working days between orders.

(c) Find the total annual variable cost for TV King Ltd. TVC =

(a) A Taiwanese supplier is offering the same price for each plasma TV and the cost to place an order is discounted by 10% of the price quoted by the Japanese supplier. However, the holding costs will increase by £5 for each plasma TV as they are 60” instead of the 40” Japanese model.

Based on your calculations, which supplier should TV King Ltd opt for? What other factors should TV King consider when choosing the supplier of their plasma TV's?

(e) Provide a detailed critical analysis to the Sales Manager of TV King Ltd of the following terms used in inventory analysis:

(i) ABC Classification system

(ii) Buffer / safety stock

(iii) Pipeline inventory

(iv) Inventory system Ensure that your analysis is applied to both TV King and to different business sectors for each term.

Calculating EOQ and Assessing Suppliers

All calculations should be clearly shown including all appropriate workings.

A London-based furniture maker produces a quantity (q) of 6 units of cabinets per week. The costs of the furniture maker are highlighted by the following equations:

· Company's total fixed cost (FC) = £120

· Total variable cost (VC) = -8q + 12q

· Demand for the units: 200 - 15q

Required:

(a) Find the equation for the London furniture maker’s profit

(b) Set up a demand, cost and profit table using values across the range of ‘q’ for q =

(c) Use the values from the table as coordinates in order to draw a demand, cost and profit graph. Explain what is happening with your 3 graphs.

(d) From your graph, differentiate your profit equation to find the value of ‘q’ which maximises the profit.

The London furniture maker has a sister company in the Liverpool with the following profit equation:

Where X is unknown and q (Liverpool) = 7

(e) Find the value for ‘X’ coefficient based on q (Liverpool).

(f) Discuss the strong and weak points in the London and Liverpool models that are identified by sensitivity analysis. For example, suppose the q for London and/or  Liverpool Company was 3 units less (or 1 unit more). What would be the effects on the demand, cost and profit graphs?

Also, provide any other information that would enable the London and Liverpool branches to become more competitive in the furniture manufacturing markets.

All calculations should be clearly shown including all appropriate workings.

A company is about install a machine used in the manufacture of commercial appliances. Three suppliers have submitted tenders to supply the machine. The first supplier offers the A-Star machine, which makes parts of a recognised quality. The output from the machine is variable and could be up to 200 units per week (with probability of 0.3), between 201 and 300 per week (with probability of 0.55) or between 301 and 400 per week. All three outputs provide a notional profit for this machine of £4 per unit. The second supplier offers a B-Star machine, which produces an output of a higher quality. The output from this machine is also variable and can be up to 180 units per week (with probability 0.45) or between 181 and 200 units per week. Both outputs provide a notional profit for this machine of £12 per unit. The third supplier offers the C-Star machine, which can be set to produce either up to 240 high-quality units per week at a notional profit of £8 per unit, or between 241 and up to 270 medium-quality units per week at a notional profit of £7 per unit.

Required:

i. Produce a decision tree for this situation and obtain the optimal decision and the expected return using the expected monetary value technique.

If production is 300 or more units per week, it is possible to sell all production as a single bulk order. Then there is a 70% chance of selling at 60% more profit, and a 30% chance of selling at 40% less profit.

ii. Produce a decision tree for this situation and obtain the optimal decision and the expected return using the expected monetary value technique. (hint: construct a second, similar tree  but with the adjusted profit values).

Report your findings (for i & ii) and provide explanations and reasons to support the construction of your model and ensure you highlight any assumptions you make.

Also within your reflection section and, as additional information to the requested information contained in the rubric on page one above, you should address the strong and weak points in your model identified by sensitivity analysis. In particular, consider the manipulation of the data such that you can identify 'points of indecision' i.e. at a decision node when the payoffs in the various branches are identical whatever the choice of decision. Remember, that you are undertaking a time constrained assessment.