t:\mgt\ghw\opsmgt\pm971113
EOQ
for Production - Class Example
Continuing with the Fantom Tire Store example for ordering and stocking their
XX13 Michlean size 22f tires. Suppose that rather than just selling tires we
also produce the tires. We will use the same data as in the previous problem
except that when we order a production run of the tires there is a period of
time when we produce and sell the tires, then after a build-up of inventory we
stop production and sell from inventory. This has the effect of reducing the
average inventory and thus will affect our EOQ.
Demand for tires: 400 per year
Holding cost: $0.80 per week per tire.
Cost of placing an order: $20 per order for the production run
In addition to the above information we also need to know the production rate
which we will assume to be 1200 tires per year.
Also since we are producing the tires lead times are negligible and thus
safety stock is also negligble.
(A) ECONOMIC ORDER QUANTITY (EOQ). How many tires should be purchased
per order to minimize the total ordering and carrying costs?
EOQ2 =
[(2DS/H)] [p/(p-u)]
where p = production rate
u = utilization rate
(B) Weekly Production Rate:
(C) Weekly Sales Rate:
(D) Cycle Time:
(1)How long will the production run last before having to reorder
another production run?
(2) How long will it take to produce the required EOQ of tires?
(e) Graph of Inventory Plan.
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EOQ
for Production - Assignment
Continue with the Tuna assignment, assume now that we produce the cans of tuna
and now want to decide how many cans of tuna should be in a production run.
Demand:
Holding cost:
Cost of setup:
Rate of production: 5.4 cans/day (maybe this is in 1,000s of cans)
Consider that the lead times are negligible and thus safety stock is also
negligible.
(A) ECONOMIC ORDER QUANTITY (EOQ).
EOQ2 =
[(2DS/H)] [p/(p-u)]
where p = production rate
u = utilization rate
(B) Weekly Production Rate:
(C) Weekly Sales Rate:
(D) Cycle Time:
(1)How long will the production run last before having to reorder
another production run?
(2) How long will it take to produce the required EOQ?
(e) Graph of Inventory Plan.
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