IENG2201- Lab Industrial Engineering Assignment

Assignment Task

You are an industrial engineering consultant and have just been hired by a local Bakery called “Whisk it for the Biscuit”. As the name implies, they specialize in making biscuits and must make a lot of them fresh every day. They need your help in deciding when and how much flour they should order.

Currently, the client orders flour in quantities of 20 bags at a time, and they can typically make 500 biscuits with a single bag of flour. They simply place an order whenever they anticipate running out before they can get a new order in. They can order as many bags as they want, there is no maximum or minimum order size, but every order incurs a $100.00 delivery cost, which occurs regardless of how many bags they order, and the lead time on an order is 2 days (ie, order Jan 1st, receive and use on Jan 3rd). The cost of bag of flour is $15.00 each and the client estimates that it costs them $0.50 per day to store one full bag of flour. You can assume that storing a partial bag of flour incurs a proportional cost. As of the start of the day of January 1st, they tell you they have 17 bags in storage.

The client is very insistent that they never run out of flour. Their business is built on these biscuits, and it will hurt their reputation if customers come in and there aren’t any to purchase. They have provided data on their daily sales of their iconic biscuit. It is the sales from last year, and they expect this year to follow the exact same pattern. Normally this would be considered unrealistic, and forecasting should be used to predict sales, but in this scenario, assume demand is known.

Question

1. Using the Total Costs (TC) equation from the readings, determine the theoretical total costs of the client’s current inventory policy over the one-year period. Then determine the true total annual costs of the client’s current inventory policy, by implementing the strategy and keeping track of inventory and costs over the one-year period.

2. Choose two other policies at random (ie. ordering 6 at a time, ordering 47 at a time, etc.) and repeat question determining the theoretical and true total costs for each policy.

3. Determine the EOQ analytically using the equations from the readings. Determine both the theoretical and true total annual costs of implementing the EOQ policy.

4. Compare the theoretical and the true costs for the each of the four strategies. Are they different? If they are, what do you think led to the discrepancy?

5. Compare the four different strategies. What is different between them? Which strategy is best and why? Do you see any potential issues even with the best strategy? Hint: Consider the assumptions and limitations we put in place for this lab, and how it might differ for a real-world scenario.

6. Plot the order, holding, unit, and total costs vs the order quantity. Does the resulting graph resemble Figure 3.5 of the readings? Why or why not? What does such a graph tell you?

7. Finally, tell the client, in everyday language, what you recommend their ordering and inventory policy for flour should be going forward. Remember, the owners are not industrial engineers and won’t know what you mean if you just give them a number like EOQ = 19 with no other information.

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