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Group-2_3 Jays Assignment

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30 views4 pages

Group-2_3 Jays Assignment

Uploaded by

Sharmistha Datta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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THREE JAYS CORPORATION

Post Graduate Program - Business Leadership (Batch - 05)

Assignment on Operations & Supply Chain Management (OSCM)

GROUP - 2

S.S.Ajitha Lakshmi - PGP / BL / 05 / 005


Nrusimha Vikram - PGP / BL / 05 / 021
Sharmistha Datta - PGP / BL / 05 / 030
Summary of the Case

The case revolves around Three Jays Corporation, a company focused on managing its inventory
and production processes efficiently. The case analysis involves determining the Economic
Order Quantity (EOQ) and Reorder Point (ROP) for five specific stock keeping units (SKUs)
scheduled for production in the last week of June. The company has noticed changes in the
EOQs and ROPs between 2010 and 2012, likely due to changes in annual demand. The analysis
also explores the impact of including the idle time costs of part-time workers on the EOQ
calculations, which has implications for the accuracy and realism of the setup costs involved in
the production process.

Q1. Using the data in Exhibit 4 and the 2012 annual demand, calculate the EOQ and ROP (re-
order point) quantities for the five SKUs scheduled to be produced in the last week of June.
How do these amounts compare with those calculated in 2010? Compare the increases in
EOQs with the increase in annual demand.

Answer :

EOQ and ROP Calculations for 2012 vs. 2010 :

To calculate the EOQ and ROP for the five SKUs, you can use the standard formulas:

● EOQ Formula:

EOQ = √ ❑

Where, D = Annual Demand

S = order / setup cost

H = Inventory Holding / Carrying Cost

● ROP Formula:

ROP = Mean Lead time Demand + Safety Stock

where, Safety Stock = z*σLT

Attached below is the calculation of 2012 Year demand data :


On further comparison with respect to 2010 Year data (exhibit 4) , the EOQ and ROP increases
as the Annual demand of 2012 is greater than 2010 and EOQ has a direct relationship with
annual demand.
Q2. Brodie is uncertain if the costs presented in Exhibit 2 are appropriate for determining the
EOQs. What changes would you recommend, and why? 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.

Answer :

a. During a production line, the productivity of three part-time workers is zero but adds
cost to the company. Including this cost help company provide a true picture of the
actual cost per setup and thereby, ensuring a realistic EOQ calculation.

Idle time cost calculation :

- Number of part-time workers (a) = 3 nos.


- Hourly wage rate of each worker (b) = 12.5 $/hr
- Idle time per stup (c ) = 0.5 hr
- Idle time cost = a*b*c = 3 x 12.5 x 0.5 = 18.75 $

Revised setup cost = 63.7 $ + 18.75 $ = 82.45 $

b. In carrying costs, the storage cost was not considered, although the case mentioned
that the warehouse was lying in excess of space. But there is always opportunity cost
associated of choosing to rent the space to the subsidiary company over investing the
space in other projects.

Considering storage cost to be 2% , the revised carrying cost is :

6% + 3% + 2% = 11%, which is very significant

c. While the EOQ model considers the demand to be constant throughout the time period,
but the actual demand in 2012 and 2010 is fluctuating significantly.
d. Consider other relevant administrative and indirect costs in the total setup cost.

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