Managing Economies of Scale in a Supply Chain: Cycle Inventory (Coursework Sample)
Harley-Davidson has its engine assembly plant in Milwaukee and its motorcycle assembly plant in Pennsylvania. Engines are transported between the two plants using trucks, with each trip costing $1,000. The motorcycle plant assembles and sells 300 motorcycles each day. Each engine costs $500; Harley incurs a holding cost of 20 percent per year. How many engines should Harley load onto each truck? What is the cycle inventory of engines at Harley?
As part of its initiative to implement just-in-time (JIT) manufacturing at the motorcycle assembly plant in Exercise 1, Harley has reduced the number of engines loaded on each truck to 100. If each truck trip still costs $1,000, how does this decision affect annual inventory costs at Harley? What should the cost of each truck be if a load of 100 engines is to be optimal for Harley?
Managing Economies of Scale in a Supply Chain: Cycle Inventory
From this case, it is evident that Harley-Davidson transports engines from Milwaukee to Pennsylvania through trucks, and the cost for every trip is $1,000.
Total number of motorcycles that are sold per day = 300
The holding costs = 20 percent of 500 = $100 for every engine
Now let us assume that “x” engines are loaded to every truck.
The costs of transportation = $1,000
Holding costs = $100*x = 100x
Total costs = 1,000+100x
Considering that the value of total revenues is the value of an engine, we can say that the total revenues are 500*x. The same will be the value at the break.
1,000+100x = 500x
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