DeltaCaseEPQ Model

1.
The spreadsheet summarizes the total annual cost calculations and verifies that Nikkis calculations are corre 2. As the spreadsheet shows, Mikes intuition is correct and using the economic order quantities will exceed the capacity by 244 hours.
3. Two options available to Delta are (1) change batch sizes and save some money without exceeding the availa and/or (2) improve the production process by reducing setup times.
Referring to the first option, the spreadsheet was used with Excels Solver to identify an improved solution. To u the Total Annual Cost (TAC) in the spreadsheet was specified for the target cell to minimize and the range conta batch sizes was specified for the by changing cells. Also the following constraints were specified:
Batch sizes must be greater than or equal to zero Batch sizes must be integer values Capacity needed must not exceed 2000 hours available
As the spreadsheet shows, an improved solution is available that does not exceed the available capacity on the save Delta about $954 ($18,705 $17,751) annually.
Referring to the second option, setup time reduction, in order to be able to use the economic order quantities, th would all need to be reduced about 62% as shown in the spreadsheet. This was found by trial and error. Note th not exceeding capacity, there is a substantial reduction in total annual cost (i.e., $10,621) as a result of the redu times.
Reduction in some setup times produces more savings than others. Other things being equal, we would aim imp the product whose annual setup cost is the largest. We would improve until that cost is no longer the largest, the another, which ever is the largest at that point. One might also attempt to make all setup times the same. If a tar minutes could be achieved, that would allow use of EPQ batch sizes without exceeding capacity.
4. When inventory is built up gradually, it is more appropriate to use the economic production quantity (EPQ) mo adds a term to the basic EOQ model that results in a larger batch size. In the Delta Products case, the optimal b the EPQ are 636, 339, 800, 735, 520, and 1049 for knobs A F, respectively. The Total Annual Cost (TAC) bas is $10,741 and the TAC using the current batch sizes assuming gradual replenishment is $16,162. Using the EP capacity is exceeded by 210 hours and an analysis similar to the one presented here can be used to identify EP exceed available capacity levels. The sensitivity analyses are applicable as well.
kkis calculations are correct. quantities will exceed the available
without exceeding the available capacity
an improved solution. To use Excels Solver, nimize and the range containing the six ere specified:
e available capacity on the press and would
onomic order quantities, the setup times d by trial and error. Note that in addition to 621) as a result of the reduction in setup
g equal, we would aim improvement first at s no longer the largest, then work on tup times the same. If a target of 2.25 ng capacity.
oduction quantity (EPQ) model. This model roducts case, the optimal batch sizes using tal Annual Cost (TAC) based on the EPQs nt is $16,162. Using the EPQs, available can be used to identify EPQs that do not
Delta Products, Inc.

Annual Demand (units) 6000 3000 7000 10000 8400 9400 Mean Daily Mean Daily Demand based on Producton based on 250 Work Days/Yr Unit Process an 8 Hour Work (units) Time (hours) Day (units) 24 0.0500 160 12 0.0420 190 28 0.0400 200 40 0.0380 211 33.6 0.0375 213 37.6 0.0480 167 Cost per Setup at $15 per Hour $ 93.00 $ 69.00 $ 108.00 $ 81.00 $ 57.00 $ 102.00
Knob A Knob B Knob C Knob D Knob E Knob F
Setup Time (hours) 6.20 4.60 7.20 5.40 3.80 6.80
Current Batch Size (units) 1500 1500 1500 2000 1500 2000
Current Batch Sizes Annual Average Inventory Holding Costs Number of Setups Current (units) Current Current 750 $ 2,438 25 750 $ 2,888 9 750 $ 2,063 34 1000 $ 3,700 27 750 $ 3,150 21 1000 $ 2,250 32
EOQ Annual Setup Cost at $15/Hr Current $ 372 $ 138 $ 504 $ 405 $ 319 $ 479 Totals:
Total Annual Cost Current $ 2,810 $ 3,026 $ 2,567 $ 4,105 $ 3,469 $ 2,729 $ 18,705
EOQ Batch Size (units) 586 328 741 662 477 923
Revised Batch Sizes Annual Average Inventory Holding Costs Number of Setups EOQ (units) EOQ EOQ 293 $ 952 63 164 $ 631 42 371 $ 1,019 68 331 $ 1,225 82 239 $ 1,002 67 462 $ 1,038 69
EOQ Annual Setup Cost at $15/Hr EOQ $ 952 $ 631 $ 1,020 $ 1,224 $ 1,004 $ 1,039 Totals:
Total Annual Cost EOQ $ 1,904 $ 1,262 $ 2,039 $ 2,448 $ 2,005 $ 2,077 $ 11,737
Revised Batch Sizes to Remain within 2000 Hour Capacity - Using EPQ Model Revised Batch Size (units) 1540 821 1937 1781 1260 2541 Annual Holding Costs Number of Setups Revised Revised $ 2,127 24 $ 1,481 17 $ 2,291 26 $ 2,669 30 $ 2,229 25 $ 2,214 25 Annual Setup Cost at $15/Hr Revised $ 362 $ 252 $ 390 $ 455 $ 380 $ 377
Average Inventory Revised (units) 655 385 833 721 531 984
Total Annual Cost Revised $ 2,489 $ 1,733 $ 2,681 $ 3,124 $ 2,609 $ 2,591
Totals:
15,227
Revised Batch Sizes to Remain within 2000 Hour Capacity - Using EOQ Model Revised Batch Size (units) 1551 868 1963 1752 1264 2443 Annual Average Inventory Holding Costs Number of Setups Revised (units) Revised Revised 776 $ 2,520 24 434 $ 1,671 16 982 $ 2,699 26 876 $ 3,241 31 632 $ 2,654 25 1222 $ 2,748 26 Annual Setup Cost at $15/Hr Revised $ 360 $ 238 $ 385 $ 462 $ 379 $ 392 Totals:
Total Annual Cost Revised $ 2,880 $ 1,909 $ 3,084 $ 3,704 $ 3,033 $ 3,141 $ 17,751
Annual Holding Cost per Unit $ 3.25 $ 3.85 $ 2.75 $ 3.70 $ 4.20 $ 2.25
Reduce Setup Time by
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
6.20 4.60 7.20 5.40 3.80 6.80
2.25 2.25 2.25 2.25 2.25 2.25
Required Capacity Current (hours) 325 135 314 407 336 483 2000 -$ $
0 2000
Hours Saved
2,543 Dollars Saved 16,162
Required Capacity EOQ Batch (hours) 363 168 348 462 382 520 2244 Capacity is Exceeded -$ $
-33 2210
Hours Saved
996 Dollars Saved 10,741
Required Capacity Revised Batch (hours) 324 143 306 410 340 476
0 2000
Hours Saved
$15,227 6 TRUE TRUE TRUE 100
2000
$ $
15,227
Required Capacity Revised Batch (hours) 324 142 306 411 340 477 2000
$17,751 6 TRUE TRUE TRUE 100
Economic Production Quantity Model

Day 250 0.775 160.00 24 $93.00 $3.25 18.60 636 26.50 9.4 6000 $878.48 $877.36 $1,755.83 4.0 540.6 270.3 1500 $372.00 $2,071.88 $2,443.88 9.4 1275.0 637.5 $688.04
t N L p d S H d*L Q TBO NPR D CH-POQ CS-POQ CPOQ TEPQ IAvg-EPQ AQ ACO ACH ACTot TAQ IMax-AQ IAvg-AQ CDelta
Select Time Unit (day, week, month, quarter) Number of working Days during the year Setup time in Days Average production rate per Day (units) Average demand or usage per Day (units) Setup Cost Holding Cost per unit Average demand or usage over the 0.775 Day setup interval (units) Economic Production Quantity (units) Time Between Production Runs (Days) Number of Production Runs per Year Annual Demand (units) Annual Holding Cost for EPQ Annual Setup Cost for EPQ Annual Total Cost for EPQ Length of production for EPQ (Days)
IMax-EPQ Maximum Inventory Level for EPQ (units)

Average Inventory Level for EPQ (units) Alternative Production Quantity Annual Setup Cost for Alternative Production Quantity Annual Holding Cost for Alternative Production Quantity Annual Total Cost (ordering and holding) for Alternative Production Quantity Length of production for AQ (Days) Maximum Inventory Level for AQ (units) Average Inventory Level for AQ (units) Difference in Annual Cost between EPQ and Alternative Production Quantity
6000 0.0500 6.2 $3.25 1500 8 $15.00
Annual Demand (units) Unit Processing Time (hours) Setup Time (hours) Annual Holding Cost per Unit Current Batch Size (units) Number of Work Hours per Work Day Machine Labor Cost per Hour
Production Quantity
Production Quantity

Day 250 0.575 190.48 12 $69.00 $3.85 6.90 339 28.25 8.8 3000 $611.46 $610.62 $1,222.08 1.8 317.6 158.8 1500 $138.00 $2,705.59 $2,843.59 7.9 1405.5 702.8 $1,621.51

3000 0.0420 4.6 $3.85 1500 8 $15.00
Production Quantity
Production Quantity

Day 250 0.9 200.00 28 $108.00 $2.75 25.20 800 28.57 8.8 7000 $946.00 $945.00 $1,891.00 4.0 688.0 344.0 1500 $504.00 $1,773.75 $2,277.75 7.5 1290.0 645.0 $386.75

7000 0.0400 7.2 $2.75 1500 8 $15.00
Production Quantity
Production Quantity

Day 250 0.675 210.53 40 $81.00 $3.70 27.00 735 18.38 13.6 10000 $1,101.40 $1,102.04 $2,203.44 3.5 595.4 297.7 2000 $405.00 $2,997.00 $3,402.00 9.5 1620.0 810.0 $1,198.56

10000 0.0380 5.4 $3.70 2000 8 $15.00
Production Quantity
Production Quantity

Day 250 0.475 213.33 34 $57.00 $4.20 15.96 520 15.48 16.2 8400 $920.01 $920.77 $1,840.78 2.4 438.1 219.1 1500 $319.20 $2,653.88 $2,973.08 7.0 1263.8 631.9 $1,132.30

8400 0.0375 3.8 $4.20 1500 8 $15.00
Production Quantity
Production Quantity

Day 250 0.85 166.67 38 $102.00 $2.25 31.96 1049 27.90 9.0 9400 $913.89 $914.01 $1,827.90 6.3 812.3 406.2 2000 $479.40 $1,742.40 $2,221.80 12.0 1548.8 774.4 $393.90

9400 0.0480 6.8 $2.25 2000 8 $15.00
Production Quantity
Production Quantity

DeltaCaseEPQ Model

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DeltaCaseEPQ Model

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1.

kkis calculations are correct. quantities will exceed the available

without exceeding the available capacity

e available capacity on the press and would

Delta Products, Inc.

Knob A Knob B Knob C Knob D Knob E Knob F

Setup Time (hours) 6.20 4.60 7.20 5.40 3.80 6.80

Knob A Knob B Knob C Knob D Knob E Knob F

Knob A Knob B Knob C Knob D Knob E Knob F

Knob A Knob B Knob C Knob D Knob E Knob F

Knob A Knob B Knob C Knob D Knob E Knob F

Reduce Setup Time by

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

6.20 4.60 7.20 5.40 3.80 6.80

2.25 2.25 2.25 2.25 2.25 2.25

2,543 Dollars Saved 16,162

996 Dollars Saved 10,741

$15,227 6 TRUE TRUE TRUE 100

$17,751 6 TRUE TRUE TRUE 100

Economic Production Quantity Model

IMax-EPQ Maximum Inventory Level for EPQ (units)

6000 0.0500 6.2 $3.25 1500 8 $15.00

Economic Production Quantity Model

IMax-EPQ Maximum Inventory Level for EPQ (units)

3000 0.0420 4.6 $3.85 1500 8 $15.00

Economic Production Quantity Model

IMax-EPQ Maximum Inventory Level for EPQ (units)

7000 0.0400 7.2 $2.75 1500 8 $15.00

Economic Production Quantity Model

IMax-EPQ Maximum Inventory Level for EPQ (units)

10000 0.0380 5.4 $3.70 2000 8 $15.00

Economic Production Quantity Model

IMax-EPQ Maximum Inventory Level for EPQ (units)

8400 0.0375 3.8 $4.20 1500 8 $15.00

Economic Production Quantity Model

IMax-EPQ Maximum Inventory Level for EPQ (units)

9400 0.0480 6.8 $2.25 2000 8 $15.00

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