Group project Mr.Lawrence
Ross White’s Machine Shop is located in Central Trinidad and specializes in designing components for the energy industry in Trinidad and Tobago.
Ross Whites machine shop uses 2500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or 10% of the unit cost) and the ordering cost is $18.75. There are 250 working days per year.
a) i) What is Ross Whites optimal order quantity? (3)
ii) What is the companys total annual cost of inventory? (2)
b) Ross White wants to re-consider his decision of buying the brackets and is considering making the brackets in-house. He has determined that set-up cost would be $25 in machinist time and lost production time. Ross estimates that the cost (including labor time and materials) of producing one bracket would be S 14.80, and that holding cost will be 10% of this cost.
i) What is Ross Whites optimal production quantity? (3)
ii) If Ross White uses the optimal production quantity, what would be his annual total cost of inventory? (2)
c) Upon hearing that Ross White is considering the producing the brackets in-house, the supplier has notified Ross that the purchase price would drop from $15 per bracket to $14.50 per bracket if Ross purchase the brackets in lots of 1000.
i) What is the total annual cost of inventory if Ross buys the brackets in lots of 1000 at $14.50 each? (2)
ii) Given the options of purchasing the brackets at $15 each, producing them in-house at $14.80, and taking advantage of the discount, what is your recommendation to Ross White? (2)
d) After analyzing the cost of the various options for obtaining the brackets, Ross White recognizes that although he knows the lead time is 2 days, the average daily demand usually varies. Ross has kept careful records and has determined that the average daily demand is normally distributed with a standard deviation of 2.5 units. If Ross would like to maintain a service level of 90%, what should his re-order point be? (5)
e) At the last management meeting, the management of Ross White decided to change its inventory control model to a fixed time model, with the same lead time of 2 days and placing orders every 2 weeks, with the suppliers. Average daily demand remains the same and with the same standard deviation. Currently there are 700 units of inventory on hand. What size orders should Ross White’s Machine Shop place with suppliers? (6)
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