M451 Supply Chain Management- Tutorial 2 Dr Banafsheh Khosravi Continuous rate EOQ model & EOQ model with backorders & EOQ model with safety stock A company can produce 100 computers per day. The set up cost for a production run is £1000. The cost of holding a computer in inventory for one year is £300. Customers demand 2000 computers per month. Assume that 1 month = 30 days and that the company operates for 360 days in a year.What is meant by the optimal production run size? Calculate the optimal production run size in this problem.How many production runs must be made each year? A food company can produce 400 frozen pizzas per day. The company operates for 250 working days in a year. The set-up costs for a pizza production run is £180 and the holding costs are £5 per pizza per year. The company’s refrigeration facility can hold a maximum of 2000 pizzas. The annual demand is 37500 pizzas per year.What is the optimal production run size that should be produced?How many days per year will the company be producing pizzas? A company has the option of purchasing or manufacturing a desk. If the desk is purchased, the company will be charged £25 per unit plus a fixed cost of £4 per order. If the company manufactures the desk, it has a production capacity of 8000 desks per year. It costs £50 to set up a production run and a manufacturing cost of £23 per desk. Given a demand of 3000 desks per year and an annual holding cost of 10% of purchase cost or production cost, determine whether the company should purchase or manufacture the desks. A car dealer must pay £20000 for each car purchased from suppliers. The annual holding cost is estimated to be 25% of the pound value of inventory. The dealer sells an average of 500 cars per year. He believes that demand can be backlogged but the cost of being short of one car for one year is £20000 worth of future profits. Each time the dealer places an order for new cars, a fixed charge ordering cost of £10000 is incurred.Determine the car dealer’s optimal strategy.What is the maximum shortage that will occur? A store sells an average of 1000 food processors each year. Each order for food processors placed by the store costs £50. The lead time is 1 month. It costs £10 to hold a food processor in inventory for one year. Annual demand for food processors is normally distributed with a standard deviation of 69 food processors. The store wants to meet 99% of all demand on time.Determine the optimal order size, reorder point and safety stock.Explain why store needs to have safety stock.

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