Question

Chips R Us (CRU) produces commodity memory devices for sale to a variety of OEMs. Demand is stable at 150 devices per day (assume that this occurs at a constant rate). The production process is such that these devices can be produced at a constant production rate of 300 per day. They have determined that a batch size of 900 devices is ideal for the current operation. In other words, whenever production begins, it continues until 900 devices are produced. The next batch of production does not begin until the entire inventory of devices is sold out. Unsold devices are held as inventory in a storage facility. Thus, each batch of production defines a cycle.

a. What is the length of each cycle in the current setup (in days)?
b. What is the average inventory level of devices in CRU’s storage facility?
c. What is the average length of time spent by a device in the storage facility (in days)?

Answer 1

Step-by-step explanation:

Daily demand = 150 devices

Production rate per day = 300 devices

Ideal batch size = 900 devices

(a) Length of cycle in setup = batch size / production per day =900/300 =3 days.

(b) Avg inventory level = 1/2 x batch size ( 1- daily demand /daily production)

= 1/2*900* [ 1- 150/300] = 450*1/2 = 225

(c) Avg length of time spent by the a unit in inventory =

1/2 * ( Maximum time spent by a unit + minimum time spent in a unit)

= 0.5 * ( 6+0) = 3 days