Question

Marly Bird Cosmetics Company allows independent sales consultants to sell cosmetics to their own clients via a network-and-sell scheme. They manufacture their own lipsticks and supply them to the Sales Consultants in their network. They need to identify what the optimal production lot size would be and how often to run their production cycle. They provide you with the following information so that you can help them by identifying the Optimal Inventory Policy for lipsticks in terms of the production lot size, total annual cost, average inventory level and reorder points along with the number of production runs per year and the cycle time in days. 

-The annual production capacity of the facility is 300,000 units of lipsticks.

-The annual demand is estimated at 250,000 lipsticks with the demand rate expected to be constant throughout the year. 

-The cost of setting up the production line is expected to be around $1000 for raw materials and production requires a lead time of 10 days. 

-The manufacturing cost per lipstick is $15.00, which includes the wages, shipping costs, and the costs of raw materials. 

-The annual holding cost is figured at a 20% rate. 

-The number of working days per year are 250. 

Answer 1

300000 Lipsticks Annual Production Annual Demand Set up Cost Manunfacturing Cost per unit Annual Holding Cost (15*20%) No. of Working days per year Lead Time 250000 1000 15 250 10 EOQ SQRT(2"DP/(C) SQRT (2 250000 *1000 )y (3) EOQ 12910 Lipsticks Company should aim to keep their production lot size of 12910 Lipsticks for best results.

Annual Demand EOQ Annual Orders 250000 12910 19.36 orders or 19 orders Annual Demand Per DayDemand 250 250000 250 Annual Demand Per Day 1000 Per Day Demand Per Day Purchasing Lead Time Reorder Point 1000 10 10000

Total Annual Cost 19.36 100012910/2 * 3 Total Annual Cost 38725