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Quantitative analysis of inventory: Optimal production lot size

Powell Industries produces its best-selling wPhone on a production line that has an annual capacity of 160,000 units.

Williams Industries estimates the annual demand for this product to be at 60,000 units. The cost to set up the production line is $2345 and the annual holding cost is $20/unit. Current practice calls for production runs of 5,000 wPhones each month.

INVENTORY POLICY
****************
PRODUCTION LOT SIZE 4,744
ANNUAL INVENTORY HOLDING COST $29,654
ANNUAL SETUP COST $29,654
TOTAL ANNUAL COST $59,309
MAXIMUM INVENTORY LEVEL 2,965
AVERAGE INVENTORY LEVEL 1,483
NUMBER OF SETUPS PER YEAR 13
CYCLE TIME (DAYS) 20

Questions:

1. What is the optimal production lot size?
2. How many production runs of w/Phones should be made each year?
3. What is the length of time between placing two consecutive orders (in days)?

Solution Preview

Powell Industries produces its best-selling wPhone on a production line that has an annual capacity of 160,000 units. Williams Industries estimates the annual demand for this product to be at 60,000 units. The cost to set up the production line is $2345 and the annual holding cost is $20/unit. Current practice calls for production runs of 5,000 wPhones each month.

INVENTORY POLICY
...

Solution Summary

Quantitative analysis of inventory and optimal production lot size is examined.

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