Case Study: Heinkel-Fishbein, Inc. Heinkel-Fishbein is a large importer and distributor of robotic toys. The toys are st

[answerhappygod]

Case Study: Heinkel-Fishbein, Inc. Heinkel-Fishbein is a largeimporter and distributor of robotic toys. The toys are stored inthe warehouse and are shipped to a several large retail chains at astandard price.. There is almost no possibility in the near futureof changing the prices at which Heinkel-Fishbein supplies theretail stores. Thus there is a need to increase profits by managingtotal costs. Considering one toy, identified as SKU 2600, theprocess consists of receiving the boxes as shipped by themanufacturer, and storing in the warehouse to be divided andshipped to the stores as per shipment schedule. The cost factorsare described as follows. The suppliers have a discount schedule,and the prices are lower for a higher volume of order, or shipment.Two suppliers are considered here. Their discount schedules are thesame as shown in Tables 1. The inventory holding cost remains thesame for both suppliers at 0.25 (25%) of the purchase price. TheOrdering Cost (Setup Cost) is also the same at $60. The annualdemand for SKU 2600 is 24,000 units. The reason for havingalternate suppliers is that the contract is up for review for thenext year, and the company needs to determine the best policy notonly for their ordering schedules but also for the bestimplementation of a JIT policy. Under the current contract, thetoys are produced and supplied by Schneider Gmbh in Germany, withan annual contract for regular and timely supply. . The lead- timefor delivery from Germany is typically 10-12 working days, or 2weeks. They are considering an alternate supplier Yamaguchi fromJapan, and the supplier may be willing to negotiate prices, butthere are some concerns. The lead-time for delivery from Japan isat least 4 weeks. This places a pressure on Heinkel-Fishbein tostock a larger number of units to account for the variability ofdemand in lead-time and the possibility of a stockout. The contractrequirements with the retail stores state that in the case of astockout, Heinkel-Fishbein must pay a penalty of $150 per unit ofstockout. Typically, a stockout occurs in periods of high demand,such as holidays and special demand periods. Thinking of the highcost of stockout, Heinkel-Fishbein is planning on moving to a JIT(Just-in-Time) policy where prices can be negotiated on annualdemand quantities but the supplier must supply in small andfrequent lots making short lead times more attractive. Table
1. Quantity Price 1  1999 $40.00 2000  3999 $38.00 4000  7999$35.00 8000 + $32.00 Questions 1. Considering costs alone, what arethe respective costs of the different ordering policies?
2. In a JIT environment, a typical approach is to considerannual demand as the quantity of an order, with prices that applyto this quantity. Comment on this approach in this context.
3. Comment on the cost of stockouts, and the need for avoidingstockouts in terms of the costs. What does it do to inventorypolicy?