Question 1
(a) Consider a product with a daily demand of 400 units, a setup cost per production run of $100, a monthly holding cost per unit of $2.00, and an annual production rate of 292,000 units. The firm operates and experiences demand 365 days per year. Suppose that management mistakenly used the basic EOQ model to calculate the batch size instead of using the POQ model. Compare EOQ method & POQ computations and show how much more money is spent per year due to the mistake.
(b) Analyse the application of JIT in the services industries. How do small lot size and reduced setup cost make sense in services? Support your answer with an example. You must demonstrate well developed written proficiency.