Problem
A part is produced in lots of 1,000 units. It is assembled from two components worth $50 total. The value added in production (for labor and variable overhead) is $60 per unit, bringing total costs per completed unit to $110. The average lead time for the part is 6 weeks and annual demand is 3,800 units, based on 50 business weeks per year.
• How many units of the part are held, on average, in cycle inventory? What is the dollar value of this inventory?
• How many units of the part are held, on average, in pipeline inventory? What is the dollar value of this inventory? (Hint:Assume that the typical part in pipeline inventory is 50 percent completed. Thus, half the labor and variable overhead cost has been added, bringing the unit cost to $80, or $50+$60/2).
Yellow Press, Inc. buys paper in 1,500-pound rolls for printing. A. Annual demand is 2,500 rolls. The cost per roll is $800, and the annual holding cost is 15 percent of the cost. Each order costs $50 to process.
B. How many rolls should Yellow Press, Inc. order at a time? What is the time between orders?
Operations Management: Processes and Supply ChainsLee J. Krajewski; Manoj Malhotra; Larry P. Ritzman.