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Now, the top management of the company decided to produce the tires for
the company by themselves but purchase the cycle bodies from a
supplier.
M a n uf a ct
ure
-
Body/Fram
e
Pur cha
se
-Tires
PRODUCTION
The company had decided to produce the tires for the cycles. The
management estimates that 1% of the tires are damaged during
the assembly process. There is a 20% of the total demand to be
produced as spare tires which customers buy if they have their
tires damaged.
◦ Each cycle requires 2 To t ake care of dam age
◦ t ires t ire Spare
t ires
◦ DEMAND = 2*50,000 + 0.01 * 50,000 + 0.2 * 50,000
= 110,500 tires / year
They incur an annual holding cost of Dhs.8 per t ire and a set -up
cost for each product ion cycle of Dhs.500
H old in gCost , H = D h s. 8 p e r t ir e / y e a r
Se t -up Cost , S = D hs. 5 0 0
PRODUCTION
The tire production machine produces a daily tire capacity of 500
tires.
Now, calculating the daily tire usage of the company. The company
has an annual number of working days of 250.
◦ Therefore ,
Usage , u = Demand / Annual working days
= 110,500 / 250
= 442 wheels / day
PRODUCTION
The company wants to find out the what is their run time, and their
total annual cost!
Qo =
2 DS p
H ( p−u )
I max = Qo p * p − u
Now, Maximum Inventory, ( )
Imax = 1,265.79 ~ 1,266 tires
PRODUCTION
Calculating,
Total Cost = Carrying Cost + Set up Cost
( )H +( )S
I max
= 2
D
Q0
= Dhs. 10,127
3000 – 4999 270
5000 or more 250
The other constraints are :
Ordering Cost = Dhs. 750
Carrying Cost = Dhs. 15 / cycle frame/ year
And the Demand is the same as the demand of the total number of
TC2236 = Q
H + QD S + PD = Dhs. 15,033,541
2
That is, When the inventory level falls below 2000 cycle frames, it has
to be reorder, so that the production doesn’t not stop because of
stock-out.
Summarizing – Inventory
Using t he dat a below, t he com pany can set up t heir invent ories
effect ively based on t he param et er values.
PRODUCTION – Cycle Tires
Quantity to be produced in each run 10,912 tires
Maximum Inventory 1266 tires
Total Cost Dhs. 10,127.23
Cycle Time 24.68 ~ 25 days
Run Time 21.82 ~ 22 days