This document provides cost analysis data for Silo Manufacturing Corporation's (SMC) proposals from Ferguson, Patrachalski, and Martin (the recommended proposal) for ordering silos. Key details include: - Martin's recommended order quantity of 550.38 units results in the lowest total annual cost of €19,275.49. - Increasing or decreasing the order quantity to the nearest whole case would change the total annual cost by less than 0.1%. - Additional analysis considers goals of reducing inventory, increasing sales, lowering costs, and a just-in-time approach. Recommendations focus on partnering with suppliers, implementing a transportation management system, and classifying materials for tailored

1. Silo Manufacturing Corporation
Part Number 649781
Presented by:
Wendy Gómez
John Treadwell
Christopher Walker
Ngo My Ngan Le

2. Question 1 to Question 6

3. Variable Definition Formulas

4. Q#1: What is the total annual cost of Ferguson’s proposal?
A: €61,926.40
Q#2: What is the total annual cost of Patrachalski’s proposal?
A: €24,942.93
Q1-Q6 Order Quantity # of Cases per Order Orders per Year Annual Ordering Cost Annual Holding Cost Total Annual Cost
Ferguson 90 6 1256,533333 € 60.313,60 € 1.612,80 € 61.926,40
EOQ to Whole Case Up 555 37,00 203,762162 € 9.780,58 € 9.945,60 € 19.726,18
EOQ 550,376495 36,69 205,473891 € 9.862,75 € 9.862,75 € 19.725,49
EOQ to Whole Case Down 540,000000 36,00 209,422222 € 10.052,27 € 9.676,80 € 19.729,07
Patrachalski 270 18 418,844444 € 20.104,53 € 4.838,40 € 24.942,93

5. 550.376495
Q#3: Based on the lowest total annual cost, what order
quantity (in units) should Martin recommend?
A: 550.38 Units
Q#4: What is the total annual cost of Martin’s
recommendation?
A: €19,275.49
Q1-Q6 Order Quantity # of Cases per Order Orders per Year Annual Ordering Cost Annual Holding Cost Total Annual Cost
Ferguson 90 6 1256,533333 € 60.313,60 € 1.612,80 € 61.926,40
EOQ to Whole Case Up 555 37,00 203,762162 € 9.780,58 € 9.945,60 € 19.726,18
EOQ 550,376495 36,69 205,473891 € 9.862,75 € 9.862,75 € 19.725,49
EOQ to Whole Case Down 540,000000 36,00 209,422222 € 10.052,27 € 9.676,80 € 19.729,07
Patrachalski 270 18 418,844444 € 20.104,53 € 4.838,40 € 24.942,93

6. Q#5: If the order quantity is decreased to the nearest whole
case what percent would your total annual cost change?
A: 0.000182%
Q#6: What percent would your annual total cost change if the
order quantity is increased to the nearest whole case?
A: 0.000035%
Q1-Q6 Order Quantity # of Cases per Order Orders per Year Annual Ordering Cost Annual Holding Cost Total Annual Cost
Ferguson 90 6 1256,533333 € 60.313,60 € 1.612,80 € 61.926,40
EOQ to Whole Case Up 555 37,00 203,762162 € 9.780,58 € 9.945,60 € 19.726,18
EOQ 550,376495 36,69 205,473891 € 9.862,75 € 9.862,75 € 19.725,49
EOQ to Whole Case Down 540,000000 36,00 209,422222 € 10.052,27 € 9.676,80 € 19.729,07
Patrachalski 270 18 418,844444 € 20.104,53 € 4.838,40 € 24.942,93

7. Question 7 to Question 10

8. What would the cost to place an order
need to be if…?

9. Goals
❑ Reducing our corporate inventories by 9.2%
❑ Increase sales by 9.6%
❑ Reducing the cost to carry inventory from 32.0%
to 29.4%.
❑ Reducing the average cost per unit by 5.2%
❑ Just In Time
Formula

10. Q7
❑ Reducing our corporate inventories by 9.2%
o New EOQ 499.741857
❑ Increase sales by 9.6%
o New Demand D=123944.448
A: € 36.107912

11. A: € 33.174145
Q8
❑ Reducing our corporate inventories by 9.2%
o New EOQ 499.741857
❑ Increase sales by 9.6%
o New Demand D=123944.448
❑ Reducing the cost to carry inventory from
32.0% to 29.4%.
o New ICC 29.4%

12. Q9
❑ Reducing our corporate inventories by 9.2%
❑ Increase sales by 9.6%
❑ With same EOQ
❑ Reducing the cost to carry inventory from
32.0% to 29.4%.
❑ Reducing the average cost per unit by 5.2%
A: € 31.449089

13. Q10
❑ Just In Time
Q=1
D=113088
ICC=32%
P=?
A: € 0.000158

14. Total annual cost with each goal
Q7-Q10 Quantity
Number of Cases
per Order
Orders Per
Year
Cost to place an order
Cost to hold
inventary
Annual Ordering
cost
Annual Holding cost Total Annual Cost
Q7 499,741857 33,3161238 248,01694 36,10791241 € 35,84 € 8.955,37 € 8.955,37 € 17.910,75
Q8 499,741857 33,3161238 248,01694 33,17414453 € 32,93 € 8.227,75 € 8.227,75 € 16.455,50
Q9 499,741857 33,3161238 248,01694 31,44908901 € 31,22 € 7.799,91 € 7.799,91 € 15.599,81
Q10 1 0,066666667 123944,45 0,000158461 € 35,84 € 19,64 € 17,92 € 37,56

15. Question 11: Recommendations

16. Short-term Recommendation
Establish a Vendor Managed Inventory
Goals
● Create Partnership with
our First Tier Suppliers
in our Desired Ordered
Supply Chain.
● Put in place a Vendor
Managed Inventory
● Reduce receiving and
quality checking labor.
● Reduce our Inventory
Carrying Cost.
Benefits
● Partner handles our Inventory on their specific supply
- IE: Grain tower motor’s shipped directly to the customer.
● Partnership equally benefit’s the two companies
resulting in synergy in reducing order to delivery time.
● Reduces our need to hold item’s in our inventory
● Complexity in the Supply Chain is reduced, employees
are able to achieve their objectives
● Cost of place orders itself lose significance under a VMI
system, leading to the bottom line of saving money.

17. Example of Grain Motor in new VMI
Things Calculated in ICC
● Direct Manufactured Cost
● Labor
- Reduced Heavily
● Inbound Freight to DC
- Removed
● Space
- SQ. FT reduced
● Insurance, Interest, Taxes
- Removed
● Loss and damage
- Removed
● Obsolescence
- Removed
Result
ICC is reduced to just Direct Manufacturing Costs and
reduced labor costs. Space is opened up for other
materials to be stored.

18. Middle-term Recommendation
Use a Transportation Management System (TMS)
• A TMS involves five transportation cost saving opportunities
• Contract Management. 10% potential savings
• Optimal Load and Route. 10% potential savings
– Cross-Docking
• Least-Cost Mode/Carrier Selection. 5% potential savings
• Shipment Execution. 3% potential savings
• Performance Improvement. 2% potential savings
• By using a TMS transportation costs will reduce by up to 30%. This in return
lowers ICC and Order Cost.

20. Long-term Recommendation
Classify materials by ABC Analysis and develop suitable
inventory strategy for each type
Percentage of
items
Percentage of
usage
Class A items About 20% About 80% Close day to
day control
Class B items About 30% About 15% Regular review
Class C items About 50% About 5% Infrequent
review

21. ABC Analysis Forecasting Procedure Review Period Inventory
Management
Replenishment
Monitoring
A
(steel, aluminum)
CPFR process ( first, joint
operation planning and MRP)
Perpetual MRP Daily
B
(alloys, chemicals)
Sales history Weekly MRP Weekly
C
(bolts, nuts, bucket
elavator, chain
conveyer,etc.)
Based on current sales No ( Order before
construction day)
No (Ask supplier to
deliver to
construction site)
No
CPFR = Collaborative Planning, Forecasting and Replenishment
MRP=Materials Requirements Planning
Reduce ICC

23. References
Agricorner.com, (2012). Wheat crop area decreased by 2.53 percent during 2010-11 | Agriculture Corner. [online] Available at:
http://www.agricorner.com/wheat-crop-area-decreased-by-2-53-percent-during-2010-11/ [Accessed 13 Nov. 2014].
Agriculturewire.com, (2014). grain | Agricultural Wire. [online] Available at: http://agriculturewire.com/tag/grain/ [Accessed 13
Nov. 2014].
Liu, X. and Sun, Y. (2012). Information Integration of CPFR in Automobile Parts Inbound Logistics Based on Internet of Things.
JCP, 7(2).

24. THANK YOU FOR YOUR LISTENING

25. Appendix - Current Purchasing Costs vs JIT Purchasing Costs
•Purchasing costs: The cost per baseball bat is $100 for both your current purchasing method and JIT
purchasing.
•Ordering costs: The cost per order is $150 for both purchasing methods.
•Opportunity costs: Company management has decided on an 8 percent required rate of return on
investment. That 8 percent rate applies to any use of capital, including inventory purchases. This is the
minimum return that the company expects from the money it has invested. If this return is not
achieved, there are likely better alternatives for the company’s cash.
•Average inventory: Average inventory is defined as the average value of inventory during a certain
time period. Average inventory is (beginning inventory + ending inventory) ÷ 2. Currently, your average
inventory is 10 percent of annual sales, or 2,000 bats. Under JIT, your average inventory will decline to
200 units.
•Carrying costs: You also incur costs for insurance and storage. Carrying costs total $15 per unit.

26. Current Purchasing Costs VS JIT Purchasing Costs
Using JIT purchasing, the number of orders increases from 20 to 200. Purchase ordering costs increase from $3,000 to
$30,000.
BUT JIT purchasing saves you $14,400 in costs ($2,049,000 current costs less $2,034,600 JIT purchasing costs).

27. Christopher’s
recommendation
Introduce a Lean Management to reduce order to delivery time. We do this by
forming a partnership with a supplier in France with the partnership we are able
to form a Vendor Managed Inventory. Our supplier would manage our inventory
reducing the need for employees to check or test the incoming supplies that are
sent to us. Ultimately this will reduce our Total Procurement Price (Unit Price
Process) because the supplier would be handling the quality testing of product.

28. Christopher’s
recommendation
Cost to place an order = (Q^2∗ICC% ∗Unit cost)/(2∗Demand)
=> NEED A HOLISTIC PLAN TO REDUCE COST TO PLACE AN ORDER FOR SMC
-Based on provided information, we found that SMC is a French company
-In France, winter wheat is the main growing season, which starts from October.( spectrumcommodities, 2014)
-This means that farmers have to plan for their new season before October.
-1st recommendation - SMC may launch promotions that
“ Farmers will receive 10% discount for ordering silos from August to the end of October”
-> Increase Demand of silos = Increase Demand of materials
But also increase Quantity order