Low Nail Company

Low Nail Company

Overview of Logistics - Lab

Low Nail Company

1. Using the EOQ methods outlined in Chapter 9, determine how many kegs of nails Low should order at one time.

Based on the EOQ formula and the figures that Low Nail company provided, Low should order 345 kegs per order.

2. Assume that all conditions in Question 1 hold, except that Low’s supplier now offers a quantity discount in the form of absorbing all or part of Low’s order-processing costs. For orders of 750 or more kegs of nails, the supplier will absorb all order-processing costs; for orders between 249 and 749 kegs, the supplier will absorb half. What is Low’s new EOQ?

Orders/Year | Order size | Ordering Costs | Carry Costs | Sum of ordering & carrying costs |

1 | 2,000 | Free | 2,000 | 2,000 |

2 | 1,000 | Free | 1,000 | 1,000 |

3 | 667 | 90 | 667 | 757 |

4 | 500 | 120 | 500 | 620 |

5 | 400 | 150 | 400 | 550 |

6 | 334 | 180 | 334 | 514 |

7 | 286 | 210 | 286 | 496 |

8 | 250 | 240 | 250 | 490 |

9 | 223 | 540 | 223 | 743 |

The new EOQ, based on the information above is 250 kegs.

3. Temporarily ignore your work on Question 2. Assume that Low’s warehouse offers to rent Low space on the basis of the average number of kegs that Low will have in stock, rather than on the maximum number of kegs that Low would need for whenever a new shipment arrived. The storage charge per keg remains the same. Does this change the answer to Question 1? If so, what is the new answer?

Orders/Year | Order size | Ordering Costs | Carry Costs | Sum of ordering & carrying costs |

1 | 2,000 | 60 | 1,000 | 1,060 |

2 | 1,000 | 120 | 500 | 620 |

3 | 667 | 180 | 334 | 524 |

4 | 500 | 240 | 250 | 490 |

5 | 400 | 300 | 200 | 500 |

The new EOQ, based on the information above is 500 kegs.

4. Take into account the answer to Question 1 and the supplier’s new policy outlined in Question 2, and the warehouse’s new policy in Question 3. Then determine Low’s...