MK455 Purchasing and Supply Management

Group Assignment # 2

(Economic Order Quantities)

Valuation = 5% of your mark.

DUE DATES:

ELECTRONIC COPY: Due in course DropBox by Tuesday December

.FORMAT REQUIREMENTS

1) Proper report format is required:

Cover page

Table of contents

Appendices

Bibliography and Citation

2) Submission must be completed in Word using either Arial or Calibri font (font size 12), single line spacing.

3) Written in the third person and in complete sentences neither bullet point format nor incomplete sentences.

4) Late assignments will NOT be accepted

Read the Mohawk Brewery situation (below) to interpret the supply needs and summarize the statistical data you will require to answer questions A-H.

Situation:

Mohawk Brewery produces only one brand of beer in a single SKU format: Mohawk Cream Ale in 24’s (Mohawk Ceram Ale does not sell in 6 packs or 12 packs, only 24 packs). The Marketing/Sales department analyzed their sales trends for the past 3 years and have estimated the 2011 demand forecast to total 22,000hectolitres(hL’s) of finished goods. Note to reader: Breweries work in hL’s and 1 hL of beer equates to 12.222 cases of 24 bottles (also known as 24’s or 24 packs).Mohawk Brewery usually negotiates with their bottle cap (crown) supplier (Caps4U) in November of the previous year (for full year demand) as the crown supplier prefers to understand total annual demand from all their customers so they can prepare a production plan based comparing their capacity requirements and capacity capabilities.Mohawk Brewery’s supply and purchase manager (Ralph) is interested in understanding the total cost of crowns if the Brewery decided to order in lot sizes as follows: a) once a year (all at once) b) twice a year c) or 3 times a year.Caps4U sales representative (Bianca) tells Ralph they have developed a program to help their customers understand and maximize the total cost of their crown needs. This program also allows Caps4U to schedule production based on demand/need.Bianca lets Ralph know she can estimate total costs based on the three scenarios he requested but she also asked for permission to calculate total cost based on finding the EOQ (economic order quantity). In addition, Bianca told Ralph that another benefit of EOQ will allow Mohawk Brewery to reduce waste and establish re-order points but that doing so will require Mohawk Brewery to understand and adapt to the principles of JIT. Or, another option Bianca explained, was they could establish fixed order periods for their crown requirements

based on Mohawk’s production schedule (if they found JIT to be too tight for their production schedules).

Bianca explained the terms of Cap4U:

Delivered price will be $.03/crown

Lead time is 20 days between orders and delivery

Cap4U operates (produces) 250 days a year

Ralph explained his situation:

They are forecasting demand for 22,000hL’s (Note to reader: you need to figure out how many crowns this is)

Mohawk’s annual carrying costs for crowns is a remarkable 2%

Mohawk has calculated their variable order cost to be $65 per orderInstructions (Answers):

(PART 1) Re-create (in excel) the charts (Questions A-H) as displayed below. Make sure you provide answers to each question (i.e. as per the yellow shaded area). Building our your own excel table will allow you to calculate your answers electronically (BUT) you must also show your work by hand for Part 2

(PART 2) Show your work (by hand) show your calculations (by hand) for each of your answers

(PART 3) Draw the (2) requested graphs

Use your student notes (especially the pages detailing the calculations in the excel format) and textbook to assist you with

understanding how to make the calculations and understanding the context of the question and answers.

You will need to know how to calculate the following, using formulas as defined in Student Notes Chapter 8 and your

textbook (pages 202 – 205):

Calculating Total Cost: Purchase Cost Set up/order costs Holding costs TC (Total Cost)

Calculate the Economic Order Point (Optimum Quantity)

Qopt (EOQ)

Calculate the Re-Order Point

P (Re-Order Point)

Calculate the Fixed Period to re-order and how much

Topt (Minimum Cost Period)

O (Optimum Order Point)

Part 1 of your assignment is to answer the questions (A-H) by creating your own excel sheet/tables with correct answers.

Part 2 is to show your work (by hand).

Part 3 is to draw the requested figures/graphs.

ANSWER SHEET (PART 1):

Each cell in Yellow requires an answer/figure. Create your own excel sheet/table to model the one below ( A- H )

ANSWER SHEET (3):

Model (Graph) the following (label each Figure completely and correctly):

1. Model identifying the EOQ and its’ relationship with carrying costs and ordering costs

2. Model identifying the EOQ , re-order points and lead times

Additional detail

use 4 decimal digits when calculating your numbers.

But, when reporting your numbers (for this assignment) display your answers as follows:

no digits when displaying # of units, # of days, annual forecasts, EOQ, re-order point, units per order, times per year

when displaying all dollar amounts, use 2 digits (even though you calculated using 4 digits)

use 2 decimals when reporting your Topt

f you provide (as required) your proof of work in your handwriting, you will need to scan so it can be included in your dropbox document.  I will allow you to type out your work in Word and include as a page in the report as the Turnitin is active.

With regards to the graphs and electronic submission, once again you will either have to scan your drawing and format to be included in your electronic report or you may choose to create the graph in excel or Power Point and attach to the submission.

I'd prefer to not receive hand drawn graphs (not very pro)