Bill Penny has a repetitive manufacturing plant producing trailer hitches in Arlington, Texas. The plant has an
Question:
Bill Penny has a repetitive manufacturing plant producing trailer hitches in Arlington, Texas. The plant has an average inventory turnover of only 12 times per year. He has therefore determined that he will reduce his component lot sizes. He has developed the following data for one component, the safety chain clip:
Annual demand = 31,200 units
Daily demand = 120 units
Daily production (in 8 hours) = 960 units
Desired lot size (1 hour or production) = 120 units
Holding cost per unit year = $ 12
Setup labor cost per hour = $ 20
Step by Step Answer:
Where D annual demand S se...View the full answer
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Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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