Integrated Case of Hope Steel, Inc.

Integrated Case of Hope Steel, Inc.

A Brief Profile of Hope STEEL works, inc.

Hope Steel Works, Inc. – also known to the local market as ‘Hope Steel’ – is one of the largest producers of concrete-reinforcement steel bars. It was established in December of 1964 by Mr. John Long, an industry pioneer whose work in the steel industry began in 1948, the company has built up a solid reputation for superior quality, good service, and fair prices.

Hope Steel supplies to a wide range of construction projects. Its bars are found in low-cost housing, private residences, luxury condominiums, commercial and industrial projects, high-rise buildings, schools, hospitals, bridges, highway over-passes and viaducts, dams and power stations, tunnels, airports, seaports, aqueducts, telecommunication sites, and other public infrastructure.

Certified under ISO-9001:2000, Hope Steel regularly sample, test and analyze its products to ensure that only superior quality reaches its customers.

Rebar Sizes

The standard Rebar sizes that the Company manufactures and sells are as follows: 10mm, 12mm, 16mm, 20mm, 25mm, 28mm, 32mm, and 36mm. For special orders, it can also make 40mm and 50mm bars.

Part 1 Forecasting

Over the past years, the demand for 25mm rebars have fluctuated with a seasonal pattern being observed. Since rebars are manufactured on a “made to order” basis, the VP for Production wanted an accurate forecast for the second half of this year 2021 to enable them to plan and schedule the ordering and the storage of the raw materials needed for the production. Demand for the 25 mm rebars for last year (2020) were as follows:

Demand for the year 2020

x

y

January

3000

February

3500

March

4800

April

4300

May

2400

June

2700

July

3500

August

3500

September

1700

October

2100

November

3200

December

2700

Based on the data above, using simple linear regression with seasonality, compute the forecasts for the months of July, August, September, October, November and December of 2021

Part 2 Inventory Management

During the production of rebars, carbon steel is melted down through a furnace, is molded and elongated into very hot rods, and are then pushed through the rolling mills which determines the sizes and lengths of the bars. The company operates 300 days per year on a 24/7 shifting schedule. Oriental Steel and Tube, Inc. is one of the largest producers of Carbon steel and is the main supplier of Hope Steel Works. It takes 4 days to receive an order from the supplier. Hope Steel Work’s annual demand for Carbon steel is 40,000 pounds. Its ordering cost is $30.00 while it’s holding cost is 20% per unit per year of the price of Carbon Steel. Oriental Steel sells Carbon steel at discounted prices as follows:

Quantity range

Cost (C)

Less than 2500 pounds

$ 0.82 per pound

2500 to 5000 pounds

$ 0.81 per pound

5000 or more pounds

$ 0.80 per pound

Please show your solutions and the comparative annual cost of your choice.

  1. Which is the best order size or quantity that should be ordered and at what cost?
  2. What will be the annual holding cost?
  3. What will be the annual ordering or set-up cost?
  4. What will be the total annual cost?
  5. What is the average daily demand?
  6. What will be the Reorder point?

Sample Solution