Question

# Why should SPC have a cycle inventory? SPC buys polystyrene resin from a supplier in 1000-pound...

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:

1. Lot size per shipment to minimalize total cost

2. Economic order quantity

3. Number of shipments/year for polystyrene resin in order to meet the forecasted demand for clear plastic in 2007

4. Cycle inventory

5. Cycle inventory holding cost

6. Replenishment cycle time

7. 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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