In: Operations Management
Sports Stuff, Inc. (SSI) is a manufacturing firm that produces sporting goods. They have started operating a factory in the U.S. and have opened a company owned store adjacent to the factory. The production manager at the factory is trying to ascertain the optimal number of footballs to produce with each production run. After careful analysis, she believes that the following data are correct:
Answer the following questions for SSI.
a) What is the optimal lot size for football production? (round to 2 decimals) footballs
b) What is the minimum inventory level of
footballs? footballs
c) What is the maximum inventory level of footballs? (round
to 2 decimals) footballs
d) What is the average inventory level of footballs? (round
to 2 decimals) footballs
e) What is the reorder point in
units? footballs
f) What is the annual setup cost for football production?
(round to 2 decimals) $
g) What is the annual holding cost for the football inventory?
(round to 2 decimals) $
Answer: Given: Annual Demand = D = 21,875 nos.
No. of working days N = 350 days
Daily demand = D / N = 21875 / 350 = 62.5 nos.
Daily production = p = 200 units
Set-up cost = S = $25
Annual storage cost = H = $17.50
Lead time = LT = 2 days
Safety stock = SS = 10 nos.
Economic Production Order quantity = = = 301.51
Minimum inventory = 0 nos.
Maximum inventory = = = 207.29 nos.
Average inventory = (Max. Inventory + Min Inventory) / 2 = (207.29 + 0) / 2 = 103.64 nos.
Re-order point = d * LT + SS = 62.5 * 2 + 10 = 135 nos.
Annual set-up cost = = = $1813.79
Annual Holding cost = Average Inventory * H = 103.64 * 17.50 = $1813.79
Hence, we get answers as:
a) What is the optimal lot size for football production? 301.51 footballs
b) What is the minimum inventory level of footballs? 0 footballs
c) What is the maximum inventory level of footballs? 207.29 footballs
d) What is the average inventory level of footballs? 103.64 footballs
e) What is the reorder point in units? 135 footballs
f) What is the annual setup cost for football production? $1813.79
g) What is the annual holding cost for the football inventory? $1813.79