The delivery contract is Free on Board and the parts need to be delivered at the port as per the cut-off date as per the MRR provided every week. The twin objectives of this project are (1) how can ABYCO expand its capacity without too much additional tooling expenses? and (2) how much inventory can be charged to the customer so that the business is not affected, keeping in mind the brand value ABYCO gets despite the small size of business? The capacity is fixed, now how to resolve this issue? Option 1 is to make a level schedule and keep on pushing the material but this is not possible as the customer is having limited warehouse space; Option 2 is to hold the inventory;
in that case how much inventory should ABYCO hold and at what cost? How to negotiate this inventory cost with the customer is the question