Frank’s machine shop operates 250 days per year. Frank sells 5,000 units per year of his most popular item, a specialty gear. The set-up cost for this gear is £100 and the monthly unit cost of holding inventory is 1% of the production cost per unit, which is £50. The lead time is 10 days. When the gear is being produced, the shop can make 80 gears per day (Hint: You should use the production model for inventory management.).
Complete the following:
How many gears should be produced in each run and at what minimum cost?
What is the cycle time?
Find the reorder point.
Draw a graph to depict inventory level against time and show on it the quantities found above. Also, what is the maximum inventory level?