Silo Manufacturing Company

Silo Manufacturing Company (SMC) is situated in Beaune, France. The manufacturing company is a regional provider of grain tower, also referred to as silos, for farms. In particular, the core business of Silo Manufacturing Company is the production of the grain elevators. However, in recent periods, Silo Manufacturing Company has expanded and propagated their business to take into account the most recent and cutting-edge in agricultural engineering services for elevator design.

In this case, the paper attempts to resolve a prevailing issue between Fred Ferguson, the Financial Comptroller and Peter Patrachalski, the Purchasing Director. These two executives both make different arguments regarding Silo Manufacturing Company's ordering policies and present different proposals (Frankel, 2013). The paper will also consider the Economic Order Quantity approach, which is proposed by Lewin to ascertain the right quantity that ought to be recommended.

What is the cost difference between Ferguson's proposal to order 4 cases each time and Patrachalski's proposal to order 32 cases each time? Carrying cost for inventory = 32% Ordering costs = $48 irrespective of the quantity levels ordered. The unit cost = $112 Every year units ordered = 10,752 units 1 case = 15 units Average lead time = 8.2 days Standard variation = 1.7 days Ferguson and Patrachalski each offered proposals for ordering part number 64-1909. 1.

Purchasing Director Patrachalski indicated he was attempting to maintain his purchasing costs low by ordering in greater quantities and gave the recommendation of purchasing 32 cases at one go. In addition, he pointed out that he would wish to evade ordering in half-done cases for the reason that doing so may give rise to shipments of improper quantities and resulting higher costs (Frankel, 2013).

Number of units = 32 x 15 = 480 units Total Unit Costs = 112 x 10, 752 = $1,204,224 Total Ordering Costs = (10,752 / 480) x 48 = $1,075.20 Total Carrying Costs = 32% x 112 x (480/2) = $8,601.60 Total Costs = $1,204,224 + $8,601.60 + $1,075.20 = $1,213,900.8 Therefore, the total cost incurred from Patrachalski's proposal is $1,213,900.8 2. Comptroller Ferguson appealed the most imperative issue for Silo Manufacturing Corporation was the cost to carry inventory and contended for ordering four cases at one go to maintain low average inventories (Frankel, 2013).

Number of units = 4 x 15 = 60 units Total Unit Costs = 112 x 10, 752 = $1,204,224 Total Ordering Costs = (10,752 / 60) x 48 = $8,601.60 Total Carrying Costs = 32% x 112 x (60/2) = $1,075.20 Total Costs = $1,204,224 + $8,601.60 + $1,075.20 = $1,213,900.8 Therefore, the total cost incurred from Ferguson's proposal is $1,213,900.8 Cost difference = $1,213,900.8 - $1,213,900.8 = $0 The cost difference between Ferguson's proposal to order 4 cases each time and Patrachalski's proposal to order 32 cases each time is $0. Taking into consideration the quantities calculated above, it can be perceived that there is no cost difference between Ferguson's proposal to order 4 cases each time and Patrachalski's proposal to order 32 cases each time.

Each of the proposals presented by Ferguson and Patrachalski is beneficial with respect to the functional area. However, none of them provides an advantage to Silo Manufacturing Corporation. Lewin suggested looking at economic order quantity. Based on the lowest total annual cost, what order quantity should Martin recommend? Economic order quantity model (EOQ) is delineated as an inventory related factor that ascertains the optimum order quantity that a company ought to hold in its inventory, taking into consideration a set of cost of production, rate of demand, and other variables.

Economic order quantity is considered to be the order quantity of the stock or the inventory that reduces the total cost of managing the inventory (Hansen et al., 2007). Two of the most significant classifications of the inventory costs are carrying costs and ordering costs. Carrying costs signify the expenses that are incurred while holding the inventory. Such costs include storage costs, expenses incurred in spoiling the inventory and also the capital and revenue that is held up in the inventory.

On the other hand, ordering costs encompass costs that are experienced by a firm or business at the time it attempts to attain extra or supplementary inventories (Hansen et al., 2007). These costs include costs of transportation, costs also incurred while conveying the ordering information and the likes. The total inventory costs are equal to the addition of the holding costs, which are the carrying costs and the ordering costs (Hansen et al., 2007).

To obtain the minimum cost, the formula that is used is as follows: EOQ = EOQ = Therefore, the EOQ = 169.70 units, which is similar to 170 units. Let us explore the concept of "robustness." Lewin's proposal to use economic order quantity may be unrealistic because SMC would like to place orders in whole cases. If the order quantity is decreased to the nearest whole case (which is a 2.78% reduction), what percent.