Excel Toys, a manufacturer of plastic toys for children, requires constant supply of high-density polyethylene (HDPE) in the resin form. HDPE is available in the resin form and one tonne costs approximately 2,000. The manufacturer runs his factory for 250 days a year and the daily consumption rate for HDPE is four tonnes. The suppliers normally take a week to replenish an order. The ordering cost is 2,000 per order and the carrying cost is 20 per cent.

Q 1 Estimate the cyclic and pipeline inventory in the system at Excel Toys. What is the total cost of the plan? Suppose if the supplier insists on a minimum order quantity of 75 tonnes, what is your recommendation to Excel? Will the recommendation change if the minimum order quantity is 150 tonnes?

Q 2 Suppose if the supplier insists on a minimum order quantity of 75 tonnes, what is your recommendation to Excel? Will the recommendation change if the minimum order quantity is 150 tonnes?

If Excel spent a sum of 10,000 towards improvements in the system, when will the improvement efforts bring payback? (Hint: Estimate the savings in costs due to reduced ordering cost)