Body Pages In APA Format Southeastern Bell Stocks

3 4 Body Pages In Apa Formatsoutheastern Bell Stocks A Certain Switch

Southeastern Bell stocks a specific switch connector at its central warehouse to supply its field service offices. The annual demand for these connectors is 15,000 units. The company estimates its annual holding cost per unit at $25, and the ordering cost per order is $75. The company operates 300 days per year, with a lead time of 2 working days to receive an order from the supplier. This paper calculates the economic order quantity (EOQ), the annual holding costs, the annual ordering costs, and the reorder point for the connector supplies, using relevant inventory management models.

Paper For Above instruction

Effective inventory management is crucial for organizations like Southeastern Bell, particularly for items such as switch connectors that are essential for operations and customer service. Properly determining the optimal order quantity and reorder point ensures minimal costs and effective stock levels, preventing both stockouts and excess inventory. This paper utilizes fundamental inventory management formulas, including the Economic Order Quantity (EOQ) model, to address the company's logistical needs for these connectors.

Economic Order Quantity (EOQ)

The EOQ model helps determine the most economical number of units to order, balancing ordering costs against holding costs. The formula is given by:

EOQ = √(2DS / H)

Where:

  • D = Annual demand = 15,000 units
  • S = Ordering cost = $75 per order
  • H = Holding cost per unit per year = $25

Substituting the values:

EOQ = √(2 15,000 75 / 25) = √(2,250,000 / 25) = √90,000 ≈ 300 units

Thus, the optimal order quantity for Southeastern Bell is approximately 300 units per order, aligning with the goal to minimize total inventory costs.

Annual Holding Costs

Annual holding costs are calculated by multiplying the average inventory level by the per-unit holding cost. Assuming the EOQ is the order size and that inventory decreases linearly from the order quantity to zero, the average inventory is EOQ / 2. Therefore:

Annual Holding Cost = (EOQ / 2) H = (300 / 2) $25 = 150 * $25 = $3,750

Hence, the estimated annual holding costs for maintaining the inventory of connectors are $3,750.

Annual Ordering Costs

Annual ordering costs depend on the number of orders placed per year. The number of orders per year is the demand divided by the EOQ:

Number of Orders = D / EOQ = 15,000 / 300 = 50 orders

So, the total annual ordering costs will be:

Annual Ordering Cost = Number of Orders S = 50 $75 = $3,750

This amounts to $3,750 annually spent on processing and placing orders.

Reorder Point (ROP)

The reorder point determines when a new order should be placed, considering the lead time to ensure stock availability during replenishment. The basic formula is:

Reorder Point (ROP) = Daily demand * Lead time

Daily demand is the annual demand divided by operating days:

Daily demand = 15,000 / 300 = 50 units per day

Given a lead time of 2 working days:

ROP = 50 units/day * 2 days = 100 units

Therefore, Southeastern Bell should reorder when the inventory level reaches 100 units to avoid stockouts during the lead time.

Conclusion

In summary, Southeastern Bell's optimal inventory management strategy for the switch connectors involves ordering approximately 300 units per order based on the EOQ model. The annual holding costs are estimated at $3,750, matching the annual ordering costs, also estimated at $3,750, indicating a balanced approach to order size and inventory costs. The reorder point is set at 100 units, aligning with the company's lead time and daily demand. Implementing these calculations can significantly improve inventory efficiency, reduce costs, and ensure timely replenishment of essential components.

References

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  • Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2008). Designing and Managing the Supply Chain: Concepts, Strategies, and Case Studies. McGraw-Hill.
  • Sanders, N. R., & Ritzman, L. P. (2016). Operations Management: Sustainability and Supply Chain Management. Pearson.
  • Silver, E. A., Pyke, D. F., & Peterson, R. (2016). Inventory Management and Production Planning and Scheduling. Wiley.
  • Waters, D. (2011). Inventory Control and Management. John Wiley & Sons.
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