03. (40 Points). A ssume that the ePaint Store has its own manufacturing facilit

Question

03. (40 Points). A ssume that the ePaint Store has its own manufacturing facility in which it produces Ironcoat paint. The ordering cost, Co, is the cost of setting up the production process to make pain Co=$140. Recall that Cc-s1.1 per gallon and D-22,000 gallons per y operates the same days the store is open (i.e. 311 days) and produces 160 gallons of paint per day. The lead time is 9 days. Determine the optimal order size, total inventory cost, the length of time to receive an order, the number of orders per year, the maximum inventory level, and reorder point. ear. The manufacturing facility

Explanation / Answer

1. The optimal order size, called as EOQ ( Economic Order Quantity) is calculated as follows:

EOQ = Sqrt((2*D*Co)/Cc) = Sqrt ((2*22000*140)/1.1))= 2366.4 ~2366 gallons.

Therefore, optimal order size is 2366 Gallons

2. Total Cycle Inventory cost = Annual Holding cost + Annual Ordering cost

So, Annual Holding cost = (Q/2)*Cc = (2366/2)*1.1 = $1301

Annual Ordering cost = (D/Q)*Co = (22000/2366)*140 = $1301.77 ~ $1302

Therefore, Total cost = 1301+1302 = $2603

3. Length of time to receive an order = Lead time = 9 Days.

4. Number of orders per year = Annual Demand/Lot size = 22000/2366 = 9.29 ~10 Orders { Rounding up, since less than 9.26 orders will lead to stockout}

5. Reorder point = Demand during lead time = (22000/311)*9 = 636.65 ~ 637 Gallons { It being given that shop operates for 311 days in an year}

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