Why should SPC have a cycle inventory? SPC buys polystyrene resin from a supplier in 1000-pound units, and each unit costs $20.00, and the percent holding cost is 10%. The fixed shipping cost per order is $300. If we assume that 1000 pounds of resin yields 1000 pounds of clear plastic, what are the following values for clear plastic:
What are the following values for clear plastic:
Lot size per shipment to minimalize total cost
Economic order quantity
Number of shipments/year for polystyrene resin in order to meet the forecasted demand for clear plastic in 2007
Cycle inventory
Cycle inventory holding cost
Replenishment cycle time
Average flow time
Data:
-1000-pound units
- $20.00 Cost per Unit
- 10%: Holding cost per year
- $300 Shipping cost
- Annual Demand:
- Black Plastic: 23,967
- Clear Plastic: 29,760
d= 1000 pound units
Here demand D for clear Plastic= 29,760
Set up cost S= $300
Holding cost per year H= 10%
Unit cost C = $20.00
Optimal lot size Q* = SQRT((2DS)/H)
=SQRT((2*29760*300)/20*0.1)
=2987.97
cycle inventory = Q/2
= 2987.97/2
=1493.98
Holding cost = (Q/2) * % Holding cost * C
=1493.98 * 0.1 * 20
=2987.97
Flow Time = Q/2d
= 2987.97/(2*1000)
= 1.49 month
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