Inventory Management Using TLC Method

This solved assignment explores inventory management using the Total Least Cost (TLC) method. It analyzes the cost implications of various order quantities for input shafts at Brunswick Motors, comparing them to a Lot-for-Lot approach. The assignment calculates total costs including holding and ordering expenses, ultimately demonstrating the cost savings achieved by implementing the TLC method.

Inventory Management 1
Inventory Management
Author
Date

Inventory Management 2
Introduction
Inventory management is basically the supervision and control of the assets of a company
that are used in the production of the items that the said company sells. For instance, Brunswick
Motors assembles engines and vehicles, and thus it is important for the company to supervise and
control the raw materials or the sub-assembled engine parts. Inventory represents an investment
that is held up by the company until the item is sold or in other words, the asset is liquidated. The
Brunswick Company must incur the necessary costs associated with storing, tracking and
insuring the inventory to avoid possible losses.
Question 1
Lot-for-lot sizing is also called discrete order quantity method for lot sizing. In this
method, the net requirement that occurs for each period of time is the same as the quantity of the
order. Brunswick is a company that deals with expensive raw materials like engines and
gearboxes and thus is required to use this method. The method is applicable in this case because
the demand for such items occurs intermittently. In the case below, the quantity is exactly the
similar to the case in which the period is specified in the fixed period.
The gross requirement is equal to the expected demand for the products in a period. The
net requirement is calculated by subtracting the previous projected inventory and the current
receipt. On the other hand, the current projected inventory is equal to the previous projected
inventory plus the current scheduled receipt plus the current planned order receipt minus the
current gross requirement. The current planned order receipt is also called the planned order
receipt which is calculated by subtracting lead time from current time. Carrying cost is

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synonymous with the holding cost and as well the setup cost is equal to the ordering cost. Having
said that, the total cost incurred is the summation of the carrying cost and the setup cost.
Lot-for-Lot Sizing Gear Boxes
1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 17 0 15 5 7 10 15 20 10 8 2 16
Scheduled Receipts 5
Projected on hand 17 17 0 0 0 0 0 0 0 0 0 0 0
Net Requirements 0 0 5 0 10 15 8 10 8 2 16
Planned Order Receipts 0 0 5 0 10 15 8 10 8 2 16
Planned order releases 5 0 10 15 8 10 8 2 16
Quantity
1 2 3 4 5 6 7 8 9 10 11 12
Quantity 17 0 15 5 7 10 15 20 10 8 2 16

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Lot-for-lot Input Shafts
1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 0 0 0 0 10 20 30 40 20 16 4 32
Scheduled Receipts 22
Projected on hand 40 30 32 2 0 0 0 0 0 0 0 0 0
Net Requirements 0 0 5 10 20 30 40 20 16 4 32
Planned Order Receipts 0 0 5 10 20 30 40 20 16 4 32
Planned order releases 10 20 30 40 20 16 4 2 16
Question 2
In this case, Phil is interested in calculating the costs that are used by the company’s
accountants for inventory carrying and setup. The cost incurred during inventory is called the
carrying cost and the setup cost of the aforementioned input shafts and gearboxes. Using lo-for-
lot the cost of schedule can be summarized in the following table.

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Cost of Schedule using lot-for-lot for Gear Boxes
1 2 3 4 5 6 7 8 9 10 11 12
Net Requirements 2 2 5 10 0 15 20 10 0 8 2 2
Planned Order 4 4 5 10 0 15 20 10 0 8 2 2
Ending Inventory 4 8 90 90 0 90 90 90 0 90 90 90
98 18
8
18
8
27
8
36
8
45
8
45
8 548 638 728
Cost of Schedule using lot-for-lot for Input Shafts
1 2 3 4 5 6 7 8 9 10 11 12
Net Requirements 3
0 32 32 2 38 20 0 16 4 32 0 0
Planned Order 3
0 32 32 2 38 20 0 16 4 32 0 0
Ending Inventory 3
0 62 94 96 45 45 0 45 45 45 0 0
14
1
18
6
18
6
23
1
27
6 321 321 321
Total cost $ 728 + $ 321 = $ 1049
Question 3

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Cost of Schedule Using Least- Total- Cost lot sizing Gear Boxes
1 2 3 4 5 6 7 8 9 10 11 12
Net Requirements 0 0 5 10 0 15 20 10 0 8 2 16
Net Requirements Qty. 0 0 5 15 15 30 50 60 60 68 70 86
Order Carrying Cost 0 0 0 20 20 11
0
27
0
37
0
37
0 482 514 802
Order Cost 0 0 90 90 90 90 90 90 90 90 90 90
Total Cost 11
0
11
0
20
0
36
0
46
0
46
0 572 604 892
1 2 3 4 5 6 7 8 9 10 11 12
Net Requirements 0 0 0 0 0 0 20 10 0 8 2 16
Net Requirements Qty. 0 0 0 0 0 0 20 30 30 38 40 56
Order Carrying Cost 0 0 0 0 0 0 0 20 20 68 84 244
Order Cost 0 0 0 0 0 0 90 90 90 90 90 90
Total Cost 0 0 0 0 0 0 90 11
0 110 158 174 334
Cost of Schedule Using Least- Total- Cost lot sizing Gear Boxes
1 2 3 4 5 6 7 8 9 10 11 12
Net Requirements 0 0 5 10 0 15 20 10 0 60 2 16
Net Requirements Qty. 0 0 30 0 0 0 40 0 0 60 0 160
Order Carrying Cost 0 0 25 15 15 0 20 10 10 0 0

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Order Cost 0 0 50 60 90 0 40 40 80 0 90
0 0 90 60 90 0 90 40 21 90
Total Cost
14
0
13
0
616 626
Total cost $ 626
Gear Box 10 unit * $ 2/Unit * 1 Week = $ 20
Cost of Schedule Using Least- Total- Cost lot sizing Input Shafts
1 2 3 4 5 6 7 8 9 10 11 12
Net Requirements 0 0 0 0 38 20 0 16 4 32 0 0
Net Requirements Qty. 0 0 0 0 38 58 58 74 78 110 110 110
Order Carrying Cost 0 0 0 0 0 20 20 68 84 244 244 244
Order Cost 0 0 0 0 45 45 45 45 45 45 45 45
Total Cost 45 65 65 11
3
12
9 289 289 289
1 2 3 4 5 6 7 8 9 10 11 12
Net Requirements 4 32 0 0
Net Requirements Qty. 4 36 36 36

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Order Carrying Cost 0 32 32 32
Order Cost 45 45 45 45
Total Cost 45 77 77 77
Cost of Schedule Using Least- Total- Cost lot sizing Input Shafts
1 2 3 4 5 6 7 8 9 10 11 12
Net Requirements qty. 0 0 0 0 38 20 0 16 4 32 0 0
End Inventory 0 0 0 0 74 0 0 0 36 0 0 0
Order Carrying Cost 0 0 0 0 36 16 16 0 32 0 0 0
Order Cost 0 0 0 0 36 32 48 0 32 0 0 00
0 0 0 0 45 32 48 0 45 0 0 0
Total Cost 0 0 0 0 81 0 77 238
Total cost $ 68
Input Shafts $ 68 + 4 unit * $ 1/Unit * 4 Week = $ 84
Conclusion
The Least Total Cost Method (TLC) is the most suitable method for Brunswick motors.
A method is a form of dynamic lot sizing which calculates the order quantity. The method

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employs the comparison technique between the varying costs and the setup cost for various lot
sizes. In addition, the method then selects the lot with the least difference or almost equal. The
company saves $ 185 by using the Total Least Cost method compared to the Lot-for-Lot method.
The total cost in the TLC method is $864 while the total cost using the L4L is $ 1049.