Case Study Report 1: THREE JAYS CORPORATION
1. Using the data in case Exhibit 4 and the 2012 annual demand, calculate the EOQ and ROP quantities for the five SKUs scheduled to be produced in the last week of June. How
...
Case Study Report 1: THREE JAYS CORPORATION
1. Using the data in case Exhibit 4 and the 2012 annual demand, calculate the EOQ and ROP quantities for the five SKUs scheduled to be produced in the last week of June. How do these amounts compare with those calculated in 2011? Compare the increases in EOQs with the increases in annual demand. (2.5 points)
The 2012 Annual Demand is given as
Exhibit 5: Monthly Sales Data
Label Fe Type
Jan b Mar Apr May June July Aug Sept Oct Nov Dec Year
Total
3Js Strawberry Jam
2012 345 301 325 299 344 296 329 334 349 325 289 333 3,869
2013 566 671 384 631 616 2,868
Marran
Markets Raspberry Jelly
2012 229 270 236 279 273 255 236 232 235 276 244 241 3,006
2013 744 737 425 379 571 2,856
Kerry's Marts Peach Jam
2012 156 176 174 144 160 178 155 159 178 166 176 148 1,970
2013 167 146 78 84 117 592
Dom's Food
Stores Blueberry Jam
2012 92 109 98 99 102 111 103 99 94 104 107 93 1,211
2013 100 99 80 139 108 526
AAA Grocers Apple/Mint Jelly
2012 66 77 79 69 65 66 68 67 62 74 71 68 832
2013 73 63 110 146 88 480
The EOQ and ROP quantities for the five SKU’s based on 2012 annual demand is given as
Peach Jam 63.7 1970 9% 26.86 322 114 Blueberry Jam 63.7 1211 9% 29.01 243 70
Apple/Mint Jelly 63.7 832 9% 26.32 212 48
As Demand increased from 2011 to 2012, the EOQ’s also increased
Deman Deman Increase EOQ EOQ Increase d (2010) d (2012) in (2010) (2012) in EOQ
Demand
2993 3869 29.27% 387 440 13.70%
2335 3006 28.74% 329 373 13.37%
1492 1970 32.04% 280 322 15.00%
886 1211 36.68% 208 243 16.83%
625 832 33.12% 183 212 15.85%
So, if Annual Demand doubles, the EOQ will increase by sqrt(2)
2. Brodie is uncertain if the costs presented in case Exhibit 2 are appropriate for determining the EOQs. What changes would you recommend, and why? Should the cost of the three idle part-time workers be included when the production line is down? Using the 2012 annual demand, and your recommendations, recalculate the EOQs for the five SKUs. (2.5 points)
In set up costs, the cost of part time workers should also be included, as they are idle at that time.
Assuming the salary of each part time worker to be half that of full time worker
So, Total salary of 3 part time workers, during idle time of 1 hour = 3*0.5*23.5 = $35.25
So, new set up cost = $63.7 + $35.25 = $98.95
In carrying cost, storage cost was considered as 0%, which should be more because, there is always an opportunity cost of storing one inventory over another.
So, considering storage cost as 2%, new carrying cost = 6% + 2% + 3% = 11%
Some of the basic assumptions of EOQ are debated
• The demand is not uniform throughout the year, which may lead to stock outs
• The order of new batch takes time and is not done instantly. For this case, the ROP should be adjusted to include the lead time to place order
Brodie’s first assignment in his internship is to update the EOQ and ROP quantities for all 141 SKUs, to reflect the current levels of demand (D), because the original calculations were done in 2011 with sales figures from 2010. This task is simple for the ROP, where:
3wks (leadtime)
ROP D(annual demand)
52(wks/year)
Making changes to the EOQ amounts is more complicated, as several logical errors exist in the data that are used as inputs for the EOQ formula. Specifically, these are the setup cost (S), the unit cost (C), and the inventory carrying cost, which is expressed here as a percentage (i). (Note: Sometimes the variables i and C are combined in the EOQ formula. When this occurs, the product of i * C is represented by the symbol H, which is the inventory holding cost in dollars per unit, per year.)
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