A local manufacturing firm is a world-class designer and diversified manufacturer of precision metallic components and systems for the automotive industry, energy and mobile industrial markets. The manufacturer is a leading edge supplier of engine, transmission, driveline, modules and systems and mobile aerial work platforms. The operation manager of the manufacturer wants to determine the production order quantity for its engines. Annual demand for the engine is 18,000 units. Equipment set up costs $5 per set up. The holding cost is $1.00 per engine per year. The company operates its production facility 300 days per year. The manufacturer has a capability of producing 120 engines per day. The cost of each engine is $2000.
a.?? Determine the production order quantity (POQ) and the number of orders. What is the annual setup cost? What is the annual holding cost? Using an appropriately labelled diagram, graph setup cost, holding cost, and total inventory cost, and show the optimal production order quantity and the minimum total inventory cost. Calculate the setup time in minutes, based on a $25 per hour setup labour cost.
b.???Suppose the manufacturer would prefer an order size (desired lot size) of 300 units per order but need to justify any change in order size. What must the setup cost be to justify the 300 units order size? What is the setup time in minutes, based on a $25 per hour setup labour cost for the 300 units order policy?
c.???As part of its new JIT program, the company has signed a long-term contract with its customers and it will take orders electronically for the engines. Setup cost will drop to $1.00, but the company also reassessed its holding costs and raised them to $1.50 per unit per year. Determine the new production order quantity and the number of orders. What is the total annual cost of managing the inventory with the new policy? What is the setup time in minutes, based on a $25 per hour setup labour cost with the new policy?
d.???How do your answers to 2(a) and 2(c) provide insight into a JIT strategy?
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