Safety stock level currently implied by ordering policy

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Reference no: EM132294839

Steve’s Beta House, a popular sandwich place on campus, has decided to bake its own buns.While demand for the basic bun is 180 dozen per day (the shop is open from noon to midnight, 300 days per year, and closed on Sundays), the company is currently buying buns every Monday and Thursday from a bakery about 2 hours away. The driver checks the stock of buns and leaves whatever it takes to get stock levels to 565 dozen. Steve has checked the invoices recently and found the average delivery to be about 540 dozen. Steve worked out the schedule based upon the bakery’s estimated delivery cost ($300 per trip) and Steve’s estimate for keeping buns in stock. Assume Steve can lease an oven that could bake 36 dozen buns per hour and have a setup cost of $36 per order. The oven could only be operated while the shop is open but its capacity during that time could be shared by other products used at Steve’s.

a) What is the safety stock level currently implied by the ordering policy?

b) What is the cost of holding inventory implied by the current ordering policy? Given the short shelf life of baked goods, does this seem reasonable?

c) How many buns should Steve bake before switching to something else in the oven (EPQ)?

d) What would be the time required to bake that quantity?

e) How long would that batch of buns last before Steve would need to set up and bake another batch?

f) What would be the maximum inventory level under this policy? Can you explain this given the EPQ is greater than the current average

order size?

g) What impact would this change in maximum inventory level have on bun freshness if any?

Reference no: EM132294839

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