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_EOQ _
By: Mike Rodaman
CompuNeed.com has hired a NIU OMIS graduate to solve a problem it has with its
current inventory system. Chuck must prove to the company that this problem
can be solved to further the companys trust in Chucks job performance. Chuck
is going to concentrate on two products that CompuNeed.com sells. The two
products are the Benchmark 550 system and the HP CD-RW 40X20. Chuck will use
both Excel and GPSS/H simulation techniques to determine the proper inventory
model to use. The two models that Chuck must choose from are lot sizing and
EOQ. The following information will compare and contrast the two models. When
looking at table 1. in the appendix Chuck can determine the effects of the EOQ
and inventory cost if weekly demand changes. Chuck can see that when the
average weekly demand decreases for both the B550 and the 40X20 the total
inventory cost decreases because less inventory is needed to support the
demand. The opposite occurs in table 1. with an increase in weekly demand for
the B550 and the 40X20 the increase in cost increases as well. When Chuck
examines the EOQ and inventory cost effects when the ordering cost changes,
Chuck is surprised that the costs do not show much deviation if the ordering
cost increases or decreases. But, when Chuck analyzes what happens to the EOQ
and inventory cost when profit margin changes Chuck finds that the numbers
dramatically change with an increase or decrease in margin as shown in table
1. Chuck also presented an Excel and GPSS/H simulation for both the B550 and
the 40X20 for the next fifteen years as shown in tables II. and III. Then
Chuck increased the lot sizes to 250 for B550 and 150 for the 40X20 as shown
in tables IV and V. The last step that Chuck accomplished is the comparison
analysis between the Excel and GPSS/H models in table VI. Chuck found that the
difference between the Lot sizing and the EOQ models have sever differences in
costs. Some of the qualitative and strategic factors involved in this case are
very important when considering how to establish an inventory system. The
first aspect that must be considered is the rapid change in technology. It may
not be feasible to try predicting fifteen years ahead when technology doubles
every ten years. Another factor that must be considered is the lowering costs
of technology. CompuNeed.com might have to lower the price of the merchandise
that is sold because of price competition that is relevant in the technology
business. The final recommendation the Chuck will give to CompuNeed.com is to
use the EOQ model for regulating the inventory. As shown in table VI Chuck can
see that the total costs by using the EOQ model will save CompuNeed.com 32% in
average expenses on the B550. It will also save CompuNeed.com 904% in average
expenses on the 40X20 by using the EOQ model. Chuck plans to implement this
EOQ system by purchasing the sufficient EOQ software that can provide the
proper requirements that the changing technology business needs. Chuck plans
to implement this system as some as possible because of the savings that the
EOQ system can provide CompuNeed.com. One limitation to implementing this
system is the time and amount of money that it will require. CompuNeed.com
will need to hire an outside firm to implement this system because of the lack
of staff that CompuNeed.com has available. It will also cost CompuNeed.com
time and training costs to train the employees on the necessary information
needed to run the system.
Word Count: 593
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