Harley Davidson Motorcycle Company is considering purchasing engines from a supplier in Milwaukee, Wisconsin. Engines would be shipped from Milwaukee to Harley’s motorcycle assembly plant in the state of Pennsylvania. Engines would be transported from Milwaukee to Pennsylvania using trucks. Each truck trip would cost $1000, essentially independent of the number of engines transported, as long as the load does not exceed 2000 engines. The motorcycle plant assembles and sells 200 motorcycles each day (365 days per year) at a fairly uniform rate. Purchased engines would cost $500 each and Harley incurs a holding cost of 20 percent per year. Harley pays for engines at the time they are shipped.
a.) How many engines (EOQ) should Harley load onto each truck in order to minimize annual truck transportation and cycle inventory holding cost? (3 points)
As an alternative, Harley is considering the implementation of lean manufacturing in Pennsylvania. As part of this initiative, it is considering the financial impact of shipping 600 engines per trip from Milwaukee (three days worth of demand).
b). If each truck trip continues to cost $1000, compute the annual engine transportation cost and cycle inventory holding cost that would be incurred at Pennsylvania under lean ( 600 engines are shipped at a time). (3 points)
c). Find the cost of each truck trip (the value of K) in order for 600 engines per
trip to be optimal with respect to the EOQ model? (2 points)
d). Suppose the truck trip from Milwaukee to Pennsylvania takes, on average, 2 days. What is the average annual holding cost associated with engines that are in-transit? HINT: To answer this you first need to determine the average dollar value of material that is in-transit, i.e., has been paid for, shipped, but has not yet arrived in Pennsylvania. (2 points)
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