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1 July, 09:42

Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. Lead time from plant to wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.

Refer to the instruction above. If the plant reduces its lead time from 4 to 2 weeks and keeps its 600 unit lot size, what is the wholesaler's new total cycle plus pipeline inventories?

A) 300 units

B) 500 units

C) 700 units

D) 200 units

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Answers (1)
  1. 1 July, 10:49
    0
    Option (B) is correct.

    Explanation:

    Given that,

    Lot size = 600

    Average demand per week = 100 units

    Lead time = 4 weeks

    Cycle inventory is determined by dividing the lot size by 2. It is calculated as follows:

    = Lot size : 2

    = 600 : 2

    = 300 units

    Pipeline inventories is determined by the product of average demand and lead time from plant to wholesaler.

    Pipeline inventories:

    = Average demand * Lead time

    = 100 * 4

    = 400 units

    Hence, Total cycle + Pipeline inventories = 300 units + 400 units

    = 700 units

    Now, if the plant reduces its lead time from 4 to 2 weeks and lot size remains the same, then

    Cycle inventory:

    = Lot size : 2

    = 600 : 2

    = 300 units

    Pipeline inventories:

    = Average demand * Lead time

    = 100 * 2

    = 200 units

    Hence, New Total cycle + Pipeline inventories = 300 units + 200 units

    = 500 units
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