As the production manager, you need to minimize both ordering and inventory costs. You need to provide a recommendation of the optimal order quantity of raw materials to your plant manager. Your objective is to determine the economic order quantity (EOQ). If the annual demand for Ultamyacin at Smitheford is 400,000 units, then the annual carrying cost rate is 15% of the cost of the unit. The product costs $48/unit to purchase, and the product ordering cost is $28.00.
In your report, discuss information based on the following questions:
- What is the basic EOQ?
- What is the TC (total cost) at the EOQ?
- How much would the TC increase if the order quantity must be 1,000 units?
- How is JIT (just-in-time) ordering methodology different from EOQ methodology?
Show all your calculations.
Please provide references.