EAST DELTA UNIVERSITY (EDU)

Final Assignment. Spring 2020

School of Business
SCM 303: Supply Chain Management
Total Points: 30

(Solve Both the Problems Below)

Question # 1: Products Ordered and Delivered Jointly. (15 points)

Axletic Inc., an American company, is well known for making high-end customized bicycles for the local
market, the USA. Some of their important manufacturing parts however are imported from certain
suppliers in China. Critical components such as top tube, rim, and rear shock are imported from a supplier
to manufacturing plant of Axelctic. Earlier Axlectic used to place independent orders for each item but the
new recruited purchasing head has decided to order all the three components jointly from the supplier.
The monthly demand for top tube is 900 units and priced at $50/unit; monthly demand for rim is 1,200
units and priced at $45/unit, and monthly demand for rear shock is 750 units and priced at $70/unit. Each
shipment would cost Axlectic $2500/order that includes only transportation cost. For each material
ordered and delivered on the same vehicle, an additional fixed cost of $500/order is incurred for import
duty, receiving, administrative, and inspection. Axlectic incurs a holding cost of 30% per year. Assuming
yourself as purchasing head of the company, your job would be to help Axelctic Inc. to gather following
relevant information to facilitate their decision making on joint ordering.
Please find out:
a) The optimal lot size for each product
b) Cycle inventory
c) Order Interval (in days)
d) Order frequency (no. of orders)
e) Annual Holding Cost
f) Annual Ordering Cost
g) Order interval (in days)
h) Average flow time (in days)
i) Total Annual Ordering & Holding Cost
*Formulas* (you may or may not require to use all the formulas)

Average flow time =

x n*
1
Page

No. of Order = D/Q*, Order Interval =Q*/D

Optimum Lot Size Q* = D / n*

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 EAST DELTA UNIVERSITY (EDU)
Final Assignment. Spring 2020
School of Business
SCM 303: Supply Chain Management

Question # 2: All Unit Quantity Discounts (15 Points)

Novanym is an electronic retail shop based in Barcelona, famous mostly for the electronic gazettes it
offers to its customers. Recently, because of some special features, ‘i-gig’, a portable computer device is
gaining popularity among the tech-savvy consumers. i-gig manufacturer is located in Japan and Novanym
is planning to buy the device from it. Novanym estimates that it would require around 1,200 i-gigs per
month. The shipping company would charge $1,500 per shipment, independent of the quantity purchased.
i-gig manufacturer offers an all unit quantity discount with a price of $120/unit with orders under 1,200
units, $115/unit for orders between 1,200 and 2,499 units, $112/unit for orders between 2,500 and 3,499
units, and $110/unit for orders larger than 3,500 units. Novanym incurs a holding cost of 50 percent.

You being a supply chain professional would help Novanym to answer the following questions:
• What is the optimal number of i-gigs the company should order per lot?
• What is the annual cost of such a policy?

*Three possible cases for Qi

1. qi <= Qi < qi +1
2. Qi < qi
3. Qi >= qi +1

Formulas:

2
Page

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