1.

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,
and 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?
2. 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 impact 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?
3. Harley purchases components from three suppliers. Components purchased from Supplier A are
priced at $5 each and used at the rate of 20,000 units per month. Components purchased from
Supplier B are priced at $4 each and used at the rate of 2,500 units per month. Components purchased
from Supplier C are priced at $5 each and used at the rate of 900units per month. Currently, Harley
purchases a separate truckload from each supplier. As part of its JIT drive, Harley has decided to
aggregate purchases from the three suppliers. The trucking company charges a fixed cost of $400 for
the truck with an additional charge of $100 for each stop. Thus, if asks for a pick up from only one
supplier, the trucking company charges $500; from two suppliers, it charges $600; and from three
suppliers, it charges $700. Suggest a replenishment strategy for Harley that minimizes annual cost.
Compare the cost of your strategy with Harleys current strategy of ordering separately from each
supplier. What is the cycle inventory of each component at Harley?
4. Prefab, a furniture manufacturer, uses 20,000 square feet of plywood per month. Its trucking
company charges Prefab $400 per shipment, independent of the quantity purchased. The manufacturer
offers an all unit quantity discount with a price of $1 per square foot for orders under 20,000 square
feet, $0.98 per square foot for orders between 20,000 square feet and 40,000 square feet, and $0.96
per square foot for orders larger than 40,000 square feet. Prefab incurs a holding cost of 20 percent.
What is the optimal lot size for Prefab? What is the annual cost of such a policy? What is the cycle
inventory of plywood at Prefab? How does it compare with the cycle inventory if the manufacturer
does not offer a quantity discount but sells all plywood at $0.96 per square foot?
5. Reconsider Exercise 4 about Prefab. The manufacturer now offers a marginal unit quantity discount
for the plywood. The first 20,000 square feet of any order are sold at $1 per square foot; the next
20,000 square feet are sold at $0.98per square foot, and any quanity larger than 40,000 square feet is
sold for $0.96 per square foot. What is the optimal lot size for Prefab given this pricing structure?
How much cycle inventory of plywood will Prefab carry given the ordering policy?