Silo Manufacturing Company Essay

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Silo Manufacturing Company (SMC) is situated in Beaune, France. The manufacturing company is a regional provider of grain tower, also referred to as silos, for farms. In particular, the core business of Silo Manufacturing Company is the production of the grain elevators. However, in recent periods, Silo Manufacturing Company has expanded and propagated their business to take into account the most recent and cutting-edge in agricultural engineering services for elevator design. In this case, the paper attempts to resolve a prevailing issue between Fred Ferguson, the Financial Comptroller and Peter Patrachalski, the Purchasing Director. These two executives both make different arguments regarding Silo Manufacturing Company's ordering policies and present different proposals (Frankel, 2013). The paper will also consider the Economic Order Quantity approach, which is proposed by Lewin to ascertain the right quantity that ought to be recommended.



What is the cost difference between Ferguson's proposal to order 4 cases each time and Patrachalski's proposal to order 32 cases each time?



Carrying cost for inventory = 32%



Ordering costs = $48 irrespective of the quantity levels ordered.



The unit cost = $112


Every year units ordered = 10,752 units



1 case = 15 units



Average lead time = 8.2 days



Standard variation = 1.7 days



Ferguson and Patrachalski each offered proposals for ordering part number 64-1909.

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1. Purchasing Director Patrachalski indicated he was attempting to maintain his purchasing costs low by ordering in greater quantities and gave the recommendation of purchasing 32 cases at one go. In addition, he pointed out that he would wish to evade ordering in half-done cases for the reason that doing so may give rise to shipments of improper quantities and resulting higher costs (Frankel, 2013).



Number of units = 32 x 15 = 480 units



Total Unit Costs = 112 x 10, 752 = $1,204,224



Total Ordering Costs = (10,752 / 480) x 48 = $1,075.20



Total Carrying Costs = 32% x 112 x (480/2) = $8,601.60



Total Costs = $1,204,224 + $8,601.60 + $1,075.20 = $1,213,900.8



Therefore, the total cost incurred from Patrachalski's proposal is $1,213,900.8



2. Comptroller Ferguson appealed the most imperative issue for Silo Manufacturing Corporation was the cost to carry inventory and contended for ordering four cases at one go to maintain low average inventories (Frankel, 2013).



Number of units = 4 x 15.....

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References


Frankel, R. M. (2013). The definitive guide to supply chain best practices: comprehensive lessons and cases in effective SCM. New York: Pearson Education.

Hansen, D., Mowen, M., & Guan, L. (2007). Cost management: accounting and control. Ohio: Cengage Learning.

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