Exercise 11-2: Harley Davidson
Part a
Inputs
Demand, R = 109,500 (assuming 365 operating days)
Fixed cost per order, S=1,000$
Cost per engine, C = 500$
Holding cost, h=20%
Order quantity 100
Outputs
# of orders per year 1,095
Annual order cost 1,095,000
Cycle inventory (units) 50
Annual holding cost 5,000$
Total inventory cost 1,100,000$
Part b
Inputs
Demand, R = 109,500 (assuming 365 operating days)
Fixed cost per order, S=1,000$
Cost per engine, C = 500$
Holding cost, h=20%
EOQ 100
Outputs
Fixed Cost per Order, S=4.57$
# of orders per year 1,095
Annual order cost 5,000
Cycle inventory (units) 50
Annual holding cost 5,000$
Total inventory cost 10,000$
Harley has decided to implement Just In Time (JIT) at the motorcycle assembly plant. As
part of this initiative, it has reduced the number of engines loaded on each truck to 100. If
each truck trip still costs $1,000, how does this decision impact annual costs at Harley?
What should the cost of each truck be if a load of 100 engines is to be optimal for Harley?
Exercise 11-2: Harley Davidson
Part I
Inputs
Demand, R = =300*365
(assuming 365 operating days)
Fixed cost per order, S=1000
Cost per engine, C = 500
Holding cost, h=0.2
Order quantity 100
Outputs
# of orders per year =C13/C17
Annual order cost =C20*C14
Cycle inventory (units) =C17/2
Annual holding cost =C15*C22*C16
Total inventory cost =C21+C23
Part II
Inputs
Demand, R = =300*365
(assuming 365 operating days)
Fixed cost per order, S=1000
Cost per engine, C = 500
Holding cost, h=0.2
EOQ 100
Outputs
Fixed Cost per Order, S==((C34^2)*C33*C32)/(2*C30)
# of orders per year =C30/C34
Annual order cost =C39*C37
Cycle inventory (units) =C34/2
Annual holding cost =C32*C41*C33
Total inventory cost =C40+C42
Harley has decided to implement Just In Time (JIT) at the motorcycle assembly plant. As part of this initiative, it has reduced the number of engines loaded on each truck to 100. If each
truck trip still costs $1,000, how does this decision impact annual costs at Harley? What should the cost of each truck be if a load of 100 engines is to be optimal for Harley?