1. Quarter-inch stainless-steel bolts, 1.5 inches long are consumed in a factory at a fairly steady rate of 60 per week. The bolts cost the plant 2 cents each. It costs the plant $12 to initiate an order, and holding costs are based on an annual interest rate of 25 percent.
a) Determine the optimal number of bolts for the plant to purchase and the time between placement of orders
b) What is the yearly holding and setup cost for this item?
2. Reconsider the bolt example in Problem 1. Suppose the minimum reorder interval is 1 month and all order cycles are places on a power-of-2 multiple of months (that is, 1 month, 2 months, 4 months, 8 months, etc.) to permit truck sharing with orders of other parts.
a) What is the least-cost reorder interval under this restriction?
b) How much does this add to the total cost?
c) How is the effectiveness of powers-of-2 order intervals related to the result of the previous problems regarding the effect of demand forecasting errors?