a.) The local grocery store, Food Town, sells 14,000 gallons of milk per year. They are open 325 days per year. Due to needing to be refrigerated, they estimate that the milk has a holding cost of 20%. They pay $1.50 per gallon from their dairy supplier. To place an order with this supplier, they estimate it costs $55 per order to process. The leadtime (once they place the order) to when they receive the milk is three working days. They like to have 10 gallons of milk as safety stock.

a) What is the EOQ?

b) Calculate the Annual Set up (ordering) Cost, Annual Holding Cost, Annual Product Cost and Total Cost (see middle of page 500 for TC).

c) What is the reorder point?

b.) One tenet of lean is to reduce lot sizes (The maximum inventory level is the lot size. Average inventory is the maximum inventory level divided by 2, so if the maximum inventory level is reduced, then average inventory is then reduced). Why is it important for set up costs to be reduced, if your company is trying to reduce inventory?

c.) Apple Jack Connectors wants to reduce inventory on their finished-goods boxes of their part number #145-C connectors in their warehouse. The production manager asked you to come up with a kanban system. After reviewing months of data for this part, you have come up with the following data:

Daily sales demand 14,000 units

Production lead-time 4 days

Safety stock 5 days

Kanban size 6000 units

How many kanbans do you need for this connector?

d.)What does it mean to be "lean" in manufacturing or service operations? If a company becomes more lean, does that impact customer satisfaction?

Please show work in Excel. Thanks :)

Answer rating: 100% (QA)

a To calculate the Economic Order Quantity EOQ we can use the following formula EOQ sqrt2 Annual Demand Ordering Cost Holding Cost Annual Demand 14000 ... View the full answer