Determine the optimal production batch size for the supplier

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Reference no: EM132215629

A supplier to Toyota stamps out parts using a press. Changing a part type requires the supplier to change the die on the press. This changeover currently takes two hours. The supplier estimates that each hour spent on the changeover costs $200. Demand for parts is 1,000 per month. Each part costs the supplier $100, and the supplier incurs an annual holding cost of 25%.

Determine the optimal production batch size for the supplier.

Toyota wants the supplier to reduce its batch size by a factor of 4; that is, if the supplier currently produces Q parts per batch, Toyota would like them to produce Q/4 parts per batch. What should the supplier do in order to achieve this result? (In other words, what setup time creates a scenario in which the optimal batch size drops to ¼ of its current level?)

Reference no: EM132215629

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