Ex 5 – Chapter 11: Amazon sells 20,000 units of consumer electronics from
Samsung every month. Each unit costs $100 and Amazon has an annual holding cost
of 20 percent. The fixed clerical and transportation cost for each order Amazon places
with Samsung is $4,000. What is the optimal size of the order that Amazon should
place with Samsung? With the goal of reducing inventories, Amazon would like to
reduce the size of each order it places with Samsung to 2,500 units (allowing it to get
eight replenishment orders every month). How much should it reduce the fixed cost per
order for an order of 2,500 units to be optimal ?
Answer:
EOQ= √
2 DS √ 2 ×20000 ×12 × 4000
= ≅ 9799(units)
H 20 % ×100
The optimal size of the order that Amazon should place with Samsung is 9799(units)
EOQ=
√2 DS ⇒ S = EOQ 2 × H = 25002 × 20 =$ 260 , 41
new
H 2×D 2 ×240000
Reduction=S−S new =4000−260 , 41=$ 3739 ,59
If the current fixed cost per order is $4,000, then the reduced fixed cost per order for
anorder of 2,500 units to be optimal would be $ 260 , 41
Therefore, Amazon should reduce the fixed cost per order by approximately
$3739,59 for an order of 2,500 units to be optimal.
Ex 7 – Chapter 11: A steel rolling mill can produce I-beams at the rate of 20 tons
per week. Customer demand for the beams is 5 tons per week. To produce I-beams, the
mill must go through a setup that requires changing to the appropriate rolling
patterns. Each setup costs the mill $10,000 in labor and lost production. I-beams cost
the mill $2,000 per ton and the mill has an annual holding cost of 25 percent. What is
the optimal production batch size for I-beams? What is the annual setup cost of the
optimal policy? What is the annual holding cost ?
Answer:
Q¿ =
√ 2 DS
H
×
P
P−d
=
√
2 ×5 ×52 ×10000
2000 ×25 %
×
20
20−5
≅ 118tons
The optimal production batch size for I-beams would be 4,56 tons
D 5 ×52
¿ × S= ×10000 ≅ $ 22033 , 9
Q 118
The annual setup cost of the optimal policy would be $ 22033 , 9
¿
Q 118
× H= × 2000=$ 118000
2 2
The annual holding cost would be $118000
