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    Case Study 8

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    eviegonzalez211
    Chris Low owns a nail company that produces 2,000 kegs of nails annually. The optimal order quantity according to economic order quantity (EOQ) methods is 490 kegs, resulting in 4 orders per year. However, the supplier now offers quantity discounts, where orders of 750+ kegs have all processing fees absorbed and orders of 249-749 kegs have half the fees absorbed. Taking this into account, as well as average warehouse inventory levels, the ideal order quantity is 250 kegs, resulting in 8 orders to meet annual production needs.

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    Case Study 8

    Uploaded by

    eviegonzalez211
    415 views1 page
    Chris Low owns a nail company that produces 2,000 kegs of nails annually. The optimal order quantity according to economic order quantity (EOQ) methods is 490 kegs, resulting in 4 orders per year. However, the supplier now offers quantity discounts, where orders of 750+ kegs have all processing fees absorbed and orders of 249-749 kegs have half the fees absorbed. Taking this into account, as well as average warehouse inventory levels, the ideal order quantity is 250 kegs, resulting in 8 orders to meet annual production needs.

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    Chris Low owns a nail company that produces 2,000 kegs of nails annually. The optimal order quantity according to economic order quantity (EOQ) methods is 490 kegs, resulting in 4 orders per year. However, the supplier now offers quantity discounts, where orders of 750+ kegs have all processing fees absorbed and orders of 249-749 kegs have half the fees absorbed. Taking this into account, as well as average warehouse inventory levels, the ideal order quantity is 250 kegs, resulting in 8 orders to meet annual production needs.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    415 views1 page

    Case Study 8

    Uploaded by

    eviegonzalez211
    Chris Low owns a nail company that produces 2,000 kegs of nails annually. The optimal order quantity according to economic order quantity (EOQ) methods is 490 kegs, resulting in 4 orders per year. However, the supplier now offers quantity discounts, where orders of 750+ kegs have all processing fees absorbed and orders of 249-749 kegs have half the fees absorbed. Taking this into account, as well as average warehouse inventory levels, the ideal order quantity is 250 kegs, resulting in 8 orders to meet annual production needs.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Case Study 8-1: Low Nail Company

    Chris Low has invested in a specialized nail company, which has an


    annual volume of 2,000 nail kegs. Low is uncertain of the amount of
    nails he should order at any time. Order processing is $60 per order
    without regard to size. Warehouse costs are $1 per year per keg space.
    Under perfect conditions at maximum warehouse potential, according
    to EOQ methods, Low would need to order 490 kegs per order. This is
    about 4 orders per year. However, Low should also take a number of
    other things into consideration and adjust his order number
    accordingly.
    Assuming conditions constant, Lows supplier now offers a quantity
    discount in the form of absorbing all or part of Lows order-processing
    costs. For orders of 750 or more kegs of nails, the supplier will absorb
    all the order-processing costs; for orders between 249 and 749 kegs,
    the supplier will absorb half. From the excel analysis; the Ideal order
    size would be 250 kegs per order. Without the supplier deal, he would
    have to order 500 kegs per unit. Also, taking into consideration that
    statistically, a warehouse, at any give time, is half full, order size is 333
    kegs per order. Low would more realistically buy 333 kegs.
    Now, if Low needs help paying for the kegs, he would need to get a
    loan. Each keg is worth $40. Interest on the loan is 1.5% per month.
    From my excel sheet, without considering supplier deal or average
    inventory, Low would have to buy 167 kegs per order. He would need
    to buy 12 orders of this to fill his quota of 2,000 annual volumes.
    Considering supplier deal and average inventory, he would need to buy
    250 kegs per unit with a total of 8 orders.

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