1. A medical instrument supplier makes 10 models of examination instruments. The demand for one of the instruments is 120 per year, each valued at $180,000. A model dependent board is made at a station before final assembly. The setup cost to make this board at this station is $635. The holding cost is $15/year/board. The setup time for a batch of board is 1 day. The production time for each board is 1.2 hours. Assuming there are 52 * 5 = 260 days/year and 260 * 8 = 2080 hours/year.
What should be the batch size and why? Please take practical considerations in addition to mechanical calculation.
What are the inventory related cost for this board?
What is the batch production time?
A sales person secured large orders from emerging markets of 100 per year. What should be the batch size and batch production time?
What are the implications of inventory related cost?
The company started the Lean movement and ask you to find ways to reduce inventory. Where do you start and why?
2. The above medical instrument supplier orders the materials for the board from a supplier. The cost structure is $100 per piece for up to 9 pieces. If they order by case of 10s, each piece costs $90. If the order size is 300, the cost is $85. Please find the best order quantity. The set up cost per order is $670. The holding cost per case is 16% of the cost of the piece per year.
What is be the order quantity with minimum cost?
Please compare the solutions in problem 2.1, would you consider any adjustment to the order quantity?
3. The actual demand for the instrument in problem 2 can be approximated by a normal distribution N(100, 35^2). If it runs out of the board, the company must either interrupt its production plan to make this board or ship the instrument late. The cost is estimated to be at $100 for each stock out. How much safety stock does the company need?
4. What if your lean effort cut the lot size into one quarter, what does this do to the safety stock and its related cost?