PROBLEM $5(30$ Points$)$

Ryanair is a popular budget airline that has employed multiple strategies to maintain its

competitive edge. One of its approaches involves reducing the turnaround time between flights

by eliminating seat pockets and tray tables to facilitate quicker cleaning. Additionally, the airline

flies to secondary airports and imposes weight limits on carry$-$on luggage by charging fees,

among other tactics. Ryanair's choice to operate solely with the Boeing $737$ model allows for

streamlined maintenance operations and a reduction in unnecessary expenses.

Another way to cut cost is inventory management. For example, the company uses $52,500$ tires

per year. Because of the physical constraints endured by these tires, they are expensive, $$2,000$

each. Ryanair's holding costs H are $30\%$ of the unit cost per year. To purchase tires, they rely on

reverse auctions where they specify the number of tires, tire characteristics, and delivery

schedule. Tire companies then submit bids to try to win the business. Ryanair procurement

managers are fond of this purchasing method, but it is expensive, costing the company about

$$70,000$ each time the company goes through this process to place an order.

Questions:

a$.$ Assuming that the lowest bid for tires will be $$2,000,$ how many tires should Ryanair order

each time it places an order?

b$.$ Referring to your answer in part a$.,$ how many orders per year will Ryanair need to make per

year if the demand for tires remains at $52,500?$

c$.$ Referring to parts a$.$ and b$.,$ what is the total yearly inventory cost $($i$.$e$.,$ setup cost $+$ holding

cost$)?$

d$.$ Assuming that demand for tires is steady throughout the $365-$day year, and if lead time on

getting tires is $9$ days, at what inventory level should Ryanafir place an order?

e$.$ Suppose Ryanair could find a tire supplier who could deliver tires at $$2,050$ each, in a just$-$in$-$

time arrangement. They would deliver the exact number of tires needed on site, each day so

that Ryanair would not need to carry any inventory. Under this condition, Ryanair believes

its cost of receiving the tires each day would be $$1,000.$

Calculate the total yearly cost of each of the two options $($reverse auction and just$-$in$-$

time$),$ including purchasing costs.

Should Ryanair consider the just$-$in$-$time option? Discuss both the financial and non$-$

financial aspects of this decision.