Inventory Management Optimization for Metropolitan Bus Company
How can Metropolitan Bus Company optimize their inventory management?
a. What is the optimal order quantity for MBC?
b. How frequently should MBC order to replenish the gasoline supply?
c. Should MBC consider expanding the capacity of its storage tanks?
d. What is the reorder point?
Answer:
a. 12,500
b. 12 times
c. If The MBC storage tanks have a capacity of 15,000 gallons there is no need of expanding the storage tanks reason been that the Economic order quantity is lesser than the storage capacity of the tank.
d. 5,000 gallons
Explanation:
a.) The optimal order quantity, or the Economic Order Quantity (EOQ), can be calculated using the formula: EOQ = √((2DS)/H)
Plugging in the values provided:
EOQ = √((2*150,000*$250)/$0.48) ≈ 12,500 gallons.
b.) To determine the frequency of ordering, divide the total annual fuel usage by the EOQ:
Frequency = 150,000/12,500 ≈ 12 times per year.
c.) Considering the optimal order quantity, the current storage tank capacity is sufficient.
d.) Reorder point can be calculated as follows:
Reorder Point = Lead time * Average daily demand
Average daily demand = 150,000/300 = 500 gallons
Reorder Point = 10 * 500 = 5,000 gallons.
Final answer:
The optimal order quantity for MBC is approximately 12,500 gallons. They should place an order about 12 times per year. The current capacity of their storage tanks, however, is sufficient. Lastly, the reorder point is 5,000 gallons.