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A medical supplies manufacturer that operates 250 days a year has a constant annual demand of 50,000 units of a certain medicine. The company has
A medical supplies manufacturer that operates 250 days a year has a constant annual demand of 50,000 units of a certain medicine. The company has a daily production capacity of 500 units and the setup cost for each production costs the company Rs. 3000. However, the company has to import the raw materials from a foreign supplier. Each unit requires 1 kg of raw materials and the ordering cost for the raw materials is Rs. 20,000 per order. The annual holding cost for both 1 unit and 1 kg of raw materials is the same at Rs. 20. However, the lead time for raw material delivery is normally distributed with an average time of 60 days and a standard deviation of 15 days. a) Calculate the annual holding cost for the finished product. b) Assuming the compan can only spend Rs. 199,000 on holding costs for the raw materials, what is the maximum service level achievable. c) How much more does the company need to spend on holding cost for raw materials in order to achieve a 98% service level.
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