QUESTION 2
A food company make their own sauce and one ingredient is the major component in the mixture and is ordered in 55-litre barrels from the supplier with a yearly usage rate of 900 barrels and with a standard deviation of daily demand of 0.5 barrels. Each order that is placed with the supplier costs €40 to process. Storage space is at a premium on the manufacturing floor and out in the yard, so their annual cost to hold inventory is €80 per barrel. The owner’s friend provides transportation services and his record is patchy, so lead time has averaged 6 days with a standard deviation of 3 days. The plant manager has set a 99% (z = 2.33) service level on the reorder point. The plant operates 365 days per year.
What is the best order quantity?
What is the total cost at this order quantity?
What is the reorder point for this product?
What is the cost of holding this safety stock?
If the owners’ friend could improve his transportation services and could guarantee a lead time of five days, how much would this save the company per annum?
An engineering firm has been supplying a customer with 10,000 wheel bearings each year. Setup costs for the wheel bearing is €40 and holding cost is €0.60 per wheel bearing per year. The firm can produce 500 wheel bearings per day to their just-in-time customer who require 50 bearings be shipped to it each business day.
What is the optimal production quantity for the wheel bearings? (4 marks)
What is the maximum number of wheel bearings that will be in inventory at the firm (2 marks)
How many production runs of wheel bearings will they have each year? (2 marks)
What is the total annual setup and holding costs for the wheel bearing?