Jamie Chang
Case Report: Jamie CHANG
1. Based on the assumption that all data collected are accurate and the methods used to collect are reliable, the EOQ calculations are correct. Given by the EOQ model, the optimal Q (quantity of an order) is set by the equation Oopt=[2(Demand Rate)(Order Setup Cost)/(Holding Cost Rate)]^(1/2). In this case, order setup cost=setup hours per order × setup cost per hour; holding cost rate= 30% × product unit cost.
2. Jamie Change only shows the optimal inventory levels for each product A-H, and the decrease in the average inventory level to Garcia, but he overlooks the consequently changes in inventory-related cost (annual ordering cost, annual holding cost, and total cost).
As shown below, for product A, D, E, F, G and H, whose present order quantity is higher than EOQ optimal order quantity, the decrease in order quantity increases the ordering cost while decreases the holding cost even more, resulting a decrease in total cost.
For product B, whose present order quantity is lower than EOQ optimal order quantity, the increase in order quantity increases the holding cost while decreases the ordering cost even more, resulting a decrease in total cost.
For product C, whose present order quantity is similar to EOQ optimal order quantity, the holding cost, ordering cost and total cost don’t change much.
Product
Present annual ordering cost (annual setup cost)
Present annual holding cost
Present annual total cost
With EOQ annual ordering cost (annual setup cost)
With EOQ annual holding cost
With EOQ annual total cost
A
3429
13755
17184
6867
6867
13735
B
3125
564
3689
1327
1328
2655
C
3033
2925
5958
2978
2979
5957
D
1350
3075
4425
2037
2037
4075
E
667
4509
5176
1733
1734
3468
F
375
2040
2415
874
875
1749
G
900
1650
2550
1218
1219
2437
H
600
9126
9726
2340
2340
4680
Total
13479
37644
51123
19378
19378
38756
Annual ordering cost = (yearly demand)/(order quantity) × (setup hours per order) × 25
Annual holding cost =
1. Based on the assumption that all data collected are accurate and the methods used to collect are reliable, the EOQ calculations are correct. Given by the EOQ model, the optimal Q (quantity of an order) is set by the equation Oopt=[2(Demand Rate)(Order Setup Cost)/(Holding Cost Rate)]^(1/2). In this case, order setup cost=setup hours per order × setup cost per hour; holding cost rate= 30% × product unit cost.
2. Jamie Change only shows the optimal inventory levels for each product A-H, and the decrease in the average inventory level to Garcia, but he overlooks the consequently changes in inventory-related cost (annual ordering cost, annual holding cost, and total cost).
As shown below, for product A, D, E, F, G and H, whose present order quantity is higher than EOQ optimal order quantity, the decrease in order quantity increases the ordering cost while decreases the holding cost even more, resulting a decrease in total cost.
For product B, whose present order quantity is lower than EOQ optimal order quantity, the increase in order quantity increases the holding cost while decreases the ordering cost even more, resulting a decrease in total cost.
For product C, whose present order quantity is similar to EOQ optimal order quantity, the holding cost, ordering cost and total cost don’t change much.
Product
Present annual ordering cost (annual setup cost)
Present annual holding cost
Present annual total cost
With EOQ annual ordering cost (annual setup cost)
With EOQ annual holding cost
With EOQ annual total cost
A
3429
13755
17184
6867
6867
13735
B
3125
564
3689
1327
1328
2655
C
3033
2925
5958
2978
2979
5957
D
1350
3075
4425
2037
2037
4075
E
667
4509
5176
1733
1734
3468
F
375
2040
2415
874
875
1749
G
900
1650
2550
1218
1219
2437
H
600
9126
9726
2340
2340
4680
Total
13479
37644
51123
19378
19378
38756
Annual ordering cost = (yearly demand)/(order quantity) × (setup hours per order) × 25
Annual holding cost =