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Low Nail Company (Case Study Sample)

Week Three: Inventory Analysis Question 1: Using the EOQ formula and the information contained in the Low Nail Case Study, how many kegs of nails should Low order at one time? Discuss your recommended Order size. Should he take the full rebate? Should he take the partial rebate? Should he avoid the rebate? Compare the savings in Total inventory-related costs from #1 to convince Mr. Low of your recommendation. Should Mr. Low take the new warehouse offer? What is your new recommendation for EOQ? Compare the savings in Total inventory-related costs from #1 to convince Mr. Low of your recommendation. What is your new recommendation for EOQ? Convince Mr. Low to take the supplier rebate, new warehouse offer, both or neither. What is his new EOQ and how has his Total inventory costs changed? Discuss how this situation is different from when you used company cash-on-hand to purchase inventory in the past. Given the new Cost of Capital, should Mr. Low still take the supplier rebate and new warehouse offer? How much do these now save him? Which of these 6 EOQs are correct? What is your final recommendation to Mr. Low? source..
Case - Low Nail Company Student’s name Institutional Affiliation Course Professor’s name Date Case - Low Nail Company From the case study, the investment made by Chris low with his extra cash on building supplies was a wise decision. The Low nail company excel sheet can justify the decision to specialize in nails, particularly nails of one size. He bought 2200 kegs of nails annually to be retailed to customers. The cost of placing an order was $52, with an annual caring cost of $1.52 per item. The company would also incur an additional cost of $0.76 per item per year on warehouse space that was half full. This would bring the annual carrying cost to $2.28 per year, including warehouse charges when the warehouse is empty. By using the formula ROUND(SQRT(2*C12*C10/C19),0), Mr. Low should order 317 kegs of nails at a time. If he purchases more or fewer than 317, his warehousing/processing costs will go up. This is why 317 is the best option to keep his costs down. When all the conditions remain constant for the company, the suppliers offer a discount for the quantity bought by the company in partial or full absorption of processing cost. The absorption conditions hold that for orders between 250 to 749 kegs, the supplier will absorb 50% of the cost; for any order above 750 kegs, the supplier will absorb 100% of the cost. The new EOQ for the company will be 275. From this, the processing cost of the company will be slashed by half, and the company's total savings will be $2686. The supplier offers Mr. Low a discount if the order size exceeds 250; this way, the company may purchase more frequently to decrease inventory and warehousing costs. As we can see from the excel sheet, 275 is the new EOQ to ensure that Mr. Low receives that 50% discount on processing fees every time and pays lower storage costs. The company only purchase 275 units for the same discount only because the additional costs in storage may end up costing Mr. Low more. When the warehouse changes its policy and offers to rent its space to the company based on stock the company holds in the warehouse, unlike before, the charges were on the maximum number of kegs that the company would need room for. This new policy would be advantageous to the company. The warehouse is charging Mr. Low less, so we must maximize our inventory to reduce the processing cost, which is calculated frequently. Mr. Low can pay the exact warehousing cost for nearly doubled inventory, especially given that the warehouse charges on the average rather than the maximum. This is because he is paying for the stock he has in his inventory, and for any space that is not occupied, he does not have to incur additional costs for it, which means the cost of the warehouse reduces. When all the new policies by the suppliers and the warehouse are considered, when processing and warehousing costs are discounted, our scenario is similar to the one in Q1. Because the variances of the two variables are inversely proportionate. EOQ aims to discover the optimal combination of factors that will result in the lowest overall cost. As can be seen, the EOQ 350 produces the lowest total, which is quite similar to the EOQ from Q1. After the race track investment, Mr. Low decides to look for more investment money and settles on a loan. The cost of buying the nails is $42 per keg with a 1.3% interest fee per month for unsold inventory. This will yield an EOQ of 169 with charges of $9115.57. Mr. Low has to pay interest on unsold items, increasing his total cost. Also, a larger inventory level means higher warehousing costs for ...
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