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Heizer and Render Chapter 12 Example 10: Nathan Manufacturing production order quantity
| Tool | Inventory Policy |
| Source | Heizer, J., and Render, B. (2011). Operations Management, 10th ed. Prentice Hall, Upper Saddle River, NJ. Chapter 12, Examples 8 and 10. |
| Level | Undergraduate |
Problem
Nathan Manufacturing makes hubcaps at 8 a day while using 4 a day, 1,000 a year; a setup costs $10 and holding a hubcap costs $0.50 a year. Find the optimal production run, the maximum inventory and the annual setup-plus-holding cost, and compare with the purchase-lot EOQ of Sharp Inc. (same costs, instantaneous delivery).
Inputs to Enter
- Model EPQ (loads the example), period year: demand 1,000, order cost 10, holding cost 0.50, production rate 2,000 per year
- Sharp Inc. (Example 8): the EOQ model with the same demand and costs
Answers
- Q_p = √(2DS/(H(1 − d/p))) = 282.8; d/p = 0.5; maximum inventory Q(1 − d/p) = 141.4; annual cost $70.71 (solution manual)
- Production time per run Q/P = 0.1414 year
- Sharp Inc.: Q* = 200 needles, 5 orders a year 50 working days apart, annual cost $100 (ordering 50 + holding 50)
Notes
Choose the EPQ model for Nathan Manufacturing; for Sharp Inc. choose EOQ and enter 1,000 / 10 / 0.50 on a yearly basis.
More Examples for This Tool
- Hillier and Lieberman §18.3: economic order quantity for the television speakers
- Hillier and Lieberman §18.3: speaker EOQ with planned shortages
- Heizer and Render Chapter 12 Example 11: Wohl's Discount Store all-units quantity discounts
- Nahmias Chapter 5: Harvey's Specialty Shop (Q, r) policy with a stock-out cost
- Chopra and Meindl Chapter 12 Examples 12-1 to 12-8: safety inventory and the periodic-review order-up-to level
- Cachon and Terwiesch Chapter 12: O'Neill Hammer 3/2 wetsuit newsvendor
- Heizer and Render Chapter 12 Example 1: ABC classification of Silicon Chips inventory