Heinkel-Fishbein is a large importer and distributor of robotic toys. The toys are stored in the warehouse and are shipp
Posted: Sun Jul 03, 2022 5:23 pm
Heinkel-Fishbein is a large importer and distributor of robotictoys. The toys are stored in the warehouse and are shipped toseveral large retail chains at a standard price. There is almost nopossibility in the near future of changing the prices at whichHeinkel-Fishbein supplies the retail stores. Thus there is a needto increase profits by managing total costs.
Considering one toy, identified as SKU 2600, the process consistsof receiving the boxes as shipped by the manufacturer and storingthem in the warehouse to be divided and shipped to the stores asper shipment schedule. The cost factors are described as follows.The suppliers have a discount schedule, and the prices are lowerfor a higher volume of order, or shipment. Two suppliers areconsidered here. Their discount schedules are the same as shown inTables 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, the toys are produced and supplied bySchneider Gmbh in Germany, with an annual contract for regular andtimely supply. . The lead- time for delivery from Germany istypically 10-12 working days, or 2 weeks. They are considering analternate supplier Yamaguchi from Japan, and the supplier may bewilling to negotiate prices, but there are some concerns. Thelead-time for delivery from Japan is at least 4 weeks. This placesa pressure on Heinkel-Fishbein to stock a larger number of units toaccount for the variability of demand in lead-time and thepossibility of a stockout. The contract requirements with theretail stores state that in the case of a stockout,Heinkel-Fishbein must pay a penalty of $150 per unit of stockout.Typically, a stockout occurs in periods of high demand, such asholidays and special demand periods. Thinking of the high cost ofstockout, 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 are the respective costs of thedifferent ordering policies?
2. In a JIT environment, a typicalapproach is to consider annual demand as the quantity of an order,with prices that apply to this quantity. Comment on this approachin this context.
3. Comment on the cost of stockouts,and the need for avoiding stockouts in terms of the costs. Whatdoes it do to inventory policy?
Considering one toy, identified as SKU 2600, the process consistsof receiving the boxes as shipped by the manufacturer and storingthem in the warehouse to be divided and shipped to the stores asper shipment schedule. The cost factors are described as follows.The suppliers have a discount schedule, and the prices are lowerfor a higher volume of order, or shipment. Two suppliers areconsidered here. Their discount schedules are the same as shown inTables 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, the toys are produced and supplied bySchneider Gmbh in Germany, with an annual contract for regular andtimely supply. . The lead- time for delivery from Germany istypically 10-12 working days, or 2 weeks. They are considering analternate supplier Yamaguchi from Japan, and the supplier may bewilling to negotiate prices, but there are some concerns. Thelead-time for delivery from Japan is at least 4 weeks. This placesa pressure on Heinkel-Fishbein to stock a larger number of units toaccount for the variability of demand in lead-time and thepossibility of a stockout. The contract requirements with theretail stores state that in the case of a stockout,Heinkel-Fishbein must pay a penalty of $150 per unit of stockout.Typically, a stockout occurs in periods of high demand, such asholidays and special demand periods. Thinking of the high cost ofstockout, 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 are the respective costs of thedifferent ordering policies?
2. In a JIT environment, a typicalapproach is to consider annual demand as the quantity of an order,with prices that apply to this quantity. Comment on this approachin this context.
3. Comment on the cost of stockouts,and the need for avoiding stockouts in terms of the costs. Whatdoes it do to inventory policy?