Problem:
Carly Castings supplies aluminum casted housings to a company that machines hydraulic pump housings that go into airplane hydraulic systems. One of the components has an annual demand of 240 units, and this is constant throughout the year. The carrying cost is estimated to be $3 per unit per year, and the ordering cost is $25 per order. (Formulas 6-1 through 6-15) Respond to the following: To minimize cost, how many units should be ordered each time an order is placed? (EOQ) How many orders per year are needed with the optimal policy? (ROP) What is the average inventory if costs are minimized? Suppose the ordering cost is not $25 and Carly Castings has been ordering 120 units each time an order is placed. For this order policy to be optimal, what would the ordering cost have to be? Suppose that there are raw material availability issues; how could Carly Castings apply the use of safety stock to address this issue?