Two material handling options are being considered for connecting two work cente
ID: 375337 • Letter: T
Question
Two material handling options are being considered for connecting two work centers. A conveyor can be purchased and operated for an annual cost of $275,000. The conveyor can transport containers that hold up to 8 units. The alternative is a forklift/pallet system that would cost $85,000 per year plus $1.65 per move. The pallets can hold up to 16 units each. The facility expects to manufacture 1,300,000 parts per year. Annual inventory holding cost is $5 per unit of WIP. Select the best container size and material handling option for this production system.
Explanation / Answer
Total annual cost of Conveyor system = Fixed cost + Annual inventory holding cost of WIP
= 275000 + 8*5
= $ 275040
Total annual cost of forklift/pallet system = Fixed cost + variable move cost + Annual inventory holding cost of WIP
= 85000 + (1300000/16)*1.65 + 16*5
= $ 219142.5
Total annual cost of forklift/pallet system is less, therefore it is the best material handling option for this production system.
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