Timw
1. Why is TEP unable to deliver all its products reliably within the target of one week, and what effects might that have on the distributors?
Ans: Reasons for TEP’s inability to deliver all its products reliably within the target of one week are:
* There are 24 machines which are working on a standard (non-overtime) week of 105 hours. Thus, there are 2520(24 X 105) machine hours available per week.
* There are 500 + stock keeping units (SKUs), each requiring about 3 hours to set-up (costing Euro 500 per set up), and the minimum run length is 20 hours. Thus, any batch takes at least 23 hours of machine time. Theoretically, the maximum number of SKUs per standard (no-overtime) week is thus 2520/23 = 110.
* On average, each SKU could be made only after every 4.5 weeks (500/110 = 4.54) or even less frequently, because larger batches for popular items will occupy more machine time.
Such a situation clearly illustrates that it would be impossible to make all the company products within the one-week delivery window, and the company must operate a make to stock (MTS) system, where inventory levels are based on forecasts rather than actual orders.
The table of representative products shows two products out of 20 (i.e. 10%) out of stock as at 2nd January (Storage bin large & Baby potty). In addition to this, there are three products at very low inventory levels (baby bath, storage bin (small), and dustbin and lid), all of which have stocks of less than two weeks’ usage.
This indicates that stock levels for about 25% of the SKUs (4 products out of 20) are quite..
2. Applying the EBQ model, what batch size would you recommend for this product? How long will each batch take to produce,
Ans: Reasons for TEP’s inability to deliver all its products reliably within the target of one week are:
* There are 24 machines which are working on a standard (non-overtime) week of 105 hours. Thus, there are 2520(24 X 105) machine hours available per week.
* There are 500 + stock keeping units (SKUs), each requiring about 3 hours to set-up (costing Euro 500 per set up), and the minimum run length is 20 hours. Thus, any batch takes at least 23 hours of machine time. Theoretically, the maximum number of SKUs per standard (no-overtime) week is thus 2520/23 = 110.
* On average, each SKU could be made only after every 4.5 weeks (500/110 = 4.54) or even less frequently, because larger batches for popular items will occupy more machine time.
Such a situation clearly illustrates that it would be impossible to make all the company products within the one-week delivery window, and the company must operate a make to stock (MTS) system, where inventory levels are based on forecasts rather than actual orders.
The table of representative products shows two products out of 20 (i.e. 10%) out of stock as at 2nd January (Storage bin large & Baby potty). In addition to this, there are three products at very low inventory levels (baby bath, storage bin (small), and dustbin and lid), all of which have stocks of less than two weeks’ usage.
This indicates that stock levels for about 25% of the SKUs (4 products out of 20) are quite..
2. Applying the EBQ model, what batch size would you recommend for this product? How long will each batch take to produce,