Question

Fiolty de Femme, a French company, is recognized as well-established name for manufacturing high-end
customized bicycles for women. Some of their important manufacturing parts however are imported from
certain suppliers in China. Critical components such as Crank Gear, Chain, and Pulley Wheels are imported
from different suppliers to manufacturing plant of Fiolty. Recently, the company has sourced a supplier
who can provide all the three components at better quality and reasonable price. And for this very reason
the procurement head of the company has decided to order the three components jointly from the same
supplier. The monthly demand for Crank Gear is 800 units and priced at $35/unit; monthly demand for
Chain is 600 units and priced at $20/unit, and monthly demand for Pulley Wheels is 1600 units and
priced at $15/unit. Each shipment would cost Fiolty $5,000/order that includes only transportation cost.
For each material ordered and delivered on the same vehicle, an additional fixed cost of $1,000/order is
incurred for import duty, receiving, administrative, and inspection. Fiolty incurs a holding cost of 30% per
year. Assuming yourself as procurement head of the company, your job would be to help Fiolty to gather
following relevant information to facilitate their decision making on joint ordering.
Please find out:
a) The optimal lot size for each product
b) Cycle inventory
c) Order frequency (no. of orders)
d) Annual Holding Cost
e) Annual Ordering Cost
f) Average flow time (in days)
g) Total Annual Ordering & Holding Cost

*Formulas* (you may or may not require to use all the formulas)
Q∗ = √2DS/hC

Average flow time =
Q∗/2D

S∗ = S + sCG + sC + sPW

Annual Order Cost = S∗x n*

n∗ = √DCGhCCG+DChCC+DPWhCPW/2S

TC = (D/Q∗) S + (Q∗/2) hC

Optimum Lot Size Q* = D / n*
No. of Order = D/Q*,
Order Interval =Q*/D

Answer 1

Answer:

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