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The partially completed inventory record for a rotor assembly in the figure below shows gros requirements, scheduled receipts, lead times and current on-hand inventory. The cost of placing an order is R400 and holding cost is R10 per unit. Lead time is 2 weeks. Determine which one of the following order policies will be the most cost effective: i. FOQ of 150 units: ii. L4L: iii. Pod with P = 2.
Expert Answer
i) FOQ of 150 units
Total cost = Holding cost + Ordering cost = (45+5+75+145+65+135)*10 + 4*400 = 6300
ii) L4L Ordering policy
Total cost = Holding cost + Ordering cost = 0 + 6*400 = 2400
iii) POQ with P = 2 weeks
Total cost = Holding cost + Ordering cost = (40+80+80)*10 + 3*400 = 3200
We see that the total cost is lowest in case of L4L . Therefore L4L policy is the most cost effective.
