Pawnee Manufacturing produces casings for stereo sets: large and small. In order to produce the different casings, equipment must be set up. Each setup configuration corresponds to a particular type of casing. The setup cost per production run-for either casing-is $6,000. The cost of carrying small casings in inventory is $2 per casing per year. The cost of carrying large casings is $6 per year. To satisfy demand, the company produces 150,000 small casings and 50,000 large casings per year.
Assume the economic lot size for small casings is 30,000 and that of the large casings is 10,000. Pawnee Manufacturing sells an average of 590 small casings per workday and an average of 200 large casings per workday. It takes Pawnee three days to set up the equipment for small or large casings. Once set up, it takes 20 workdays to produce a batch of small casings and 20 days for large casings. There are 250 workdays available per year.
Required:
1. What is the reorder point for small casings? Large casings?
2. Using the economic order batch size, is it possible for Pawnee to produce the amount that can be sold of each casing? Does scheduling have a role here? Explain. Is this a push- or pull-through system approach to inventory management? Explain.