Congratulations! You have been hired by a new fast-food company "Basta! Pasta" offering fresh pasta to-go in 10 cities. As an operations manager, you will have to create a robust customer service process by analyzing the operations and process flows, optimizing them, improving inventory and supply chain management that is expected to result in an increase in the company’s performance. At the end of your trial period, you will have to present the result of your work in front of the Board members.
Description:
"Basta! Pasta" uses 400 packages of spaghetti (5 kg each) every month, and demand is steady throughout the year. "Basta! Pasta" signed a contract to purchase the spaghetti from a U.S. distributor for a price of $6 per package and $100 fixed cost for every delivery independent of the order size. "Basta! Pasta" incurs an inventory holding cost of 25 percent per year. At the moment, "Basta! Pasta" orders 1.000 packages of spaghetti at a time.
In this Capstone Project Part, you will have to apply your knowledge of Inventory Management basics.
1) Use the EOQ Model (refer to your textbook Chapter 12 pp. 366-373) to answer the questions below:
1.1) How many orders does "Basta! Pasta" place per year?
1.2) What is "Basta! Pasta’s" annual inventory holding cost per package?
1.3) What is "Basta! Pasta’s" annual holding cost if it orders 1,000 packages at a time?
1.4) What is "Basta! Pasta’s" sum of ordering and holding costs per year if it orders 1,000 bags with each order?
1.5) What order quantity minimizes "Basta! Pasta’s" ordering and holding costs per year?
1.6) An Italian producer offered "Basta! Pasta" a deal. "Basta! Pasta" can buy a year’s worth of spaghetti directly from Italy for $4 per package and a fixed cost for delivery of $1,000. If "Basta! Pasta" takes this deal, what would be the sum of its purchasing, ordering and holding costs per year? Should "Basta! Pasta" accept this offer or continue following the current practice (ordering 1,000 packages at a time)?
