Sturdivant Sound Systems

Introduction

The paper attempts to discuss the concept of manufacturing and operational management in a holistic context. It is aimed at addressing the issue of economic order quantity in relation to the case study of Sturdivant Sound Systems. The paper answers all the questions that are based on manufacturing and economic order quantity calculations for the the purpose of managing production and business operations.

Discussion

In order to solve the question, its better understand the concept of Economic Order Quantity, holding cost and other common terminologies used in the calculation of Economic Order Quantity. The Economic Order Quantity is the number of units that a company should add to inventory with each order to minimize the total costs of inventory—such as holding costs, order costs, and shortage costs (Balakrishnan, Michael & Euthemia, 2004). The Economic Order Quantity is used as part of a continuous review inventory system in which the level of inventory is monitored at all times and a fixed quantity is ordered each time the inventory level reaches a specific reorder point (Piasecki, 2001).

The Economic Order Quantity provides a model for calculating the appropriate reorder point and the optimal reorder quantity to ensure the instantaneous replenishment of inventory with no shortages. It can be a valuable tool for small business owners who need to make decisions about how much inventory to keep on hand, how many items to order each time, and how often to reorder to incur the lowest possible costs (Khouja & Sungjune, 2003).

The Economic Order Quantity model assumes that demand is constant, and that inventory is depleted at a fixed rate until it reaches zero. At that point, a specific number of items arrive to return the inventory to its beginning level. Since the model assumes instantaneous replenishment, there are no inventory shortages or associated costs (Wang, Hui-Ming, Shin-Feng & Shen-Lian, 2005). Therefore, the cost of inventory under the Economic Order Quantity model involves a tradeoff between inventory holding costs (the cost of storage, as well as the cost of tying up capital in inventory rather than investing it or using it for other purposes) and order costs (any fees associated with placing orders, such as delivery charges).

Ordering a large amount at one time will increase a small business's holding costs, while making more frequent orders of fewer items will reduce holding costs but increase order costs. The Economic Order Quantity model finds the quantity that minimizes the sum of these costs (Balakrishnan, Michael & Euthemia, 2004). The basic Economic Order Quantity relationship is shown below. Let us look at it assuming we have a painter using 3,500 gallons of paint per year, paying $5 a gallon, a $15 fixed charge every time he/she orders, and an inventory cost per gallon held averaging $3 per gallon per year.

The relationship is TC = PD + HQ/2 + SD/Q '? where

TC is the total annual inventory cost—to be calculated.

P is the price per unit paid—assume $5 per unit.

D is the total number of units purchased in a ...