Question 2 & 3

You were called on to the production floor one morning to look at the state of affairs and help reduce the inventory sitting on the floor. You immediately noticed a large pile of component inventory raw material) sitting in front of the production line. You decided to get a cup of coffee to wake up your mental faculties while pondering about the inventory pile up. You immediately realized the problem (coffee worked!). The shop was ordering components in much larger lots (500 units lot size) due to economies of scale in your mind, the problem was not ordering in 600. But you needed to build up the case based on annual cost savings before presenting and convincing the shop manager and purchasing executives to change their buying pattern Ordering cost was estimated to be 550.00. Finance team was able to provide you with the inventory carrying cost rate of 0.20 55 inventory/year, Production line was consuming the components at a steady demand rate of 12 units/month. The component cost is 55.00. Equipped with these facts you started working on the optimal order quantity to run the production system at the lowest possible cost. 1) What EOC quantity you came up with 2 How much savings in costs and so will bring every year? Hint for 2 Calculate total cost for opertaing under EOQ vs., lot size of 500 units for the cost savings under 100. show the formula and calculation. Equations that you might need to use K(Q) DA/QCQ/ 2CD Q" Square root (2DA/C) (Economic Order City K(Q)-DA/Q+IC0/2+ CD Q" Square root (2A/C) (Economic Order Qty) KIO) - Total cost per unit time, D- Demand rate (units/timel. Q - Order aty units. C = Unit cost $li Inventory carrying rate (5/5inventory per unit time Q* - Economic Order Quantity (EOQ) Part 11 (10 pts You convinced purchasing executives to purchase in EOQ quantities and got plenty of kudos from you director. The benefits were immediate in terms of low WP (Work-in- process inventory, more space and visibility in in the shop. Everyone was happy about this change until you were called again one morning on your way to the line, you were thinking what else could have gone wrong? You were surprised to see the bottleneck now moving from front of the production line to the middle stations in terms of high WIP (work in process) Inventory. You again went for the cup of coffee but this time you sat on the shop floor silently watching how jobs were scheduled. You immediately realized that jobs were not scheduled effectively, 31 What scheduling sequence would you try on the shop to reduce the wil levels at all stations and why