There are three questions in this problem:
First, what is the total number of batteries in the plant
for both work in process and raw materials inventory.
Second, how much are the batteries worth?
And lastly, how many days of supply are held in the raw material
inventories on average?
1. So we know that there are two inventories namely work-in-process
and raw material.
For the work-in-process, Little’s law can be straightly
applied to look for the amount ofwork-in-process inventory:
Little’s law is Inventory = Throughput × Flow time
Where:
Throughput is the production rate of the plant which is 200
cars per 8-hour shift or 25 cars per hour.
Since we use one battery per car, our throughput rate for
the batteries is 25 per hour.
Flow time is 12 hours, so the work-in-process is:
Work-in-process inventory = 25 batteries per hour × 12 hours
= 300 batteries
Given from the problem that there are 8,000 batteries in raw
materials inventory;
so the total number of batteries in the pipeline on average
is computed by:
Total inventory = 8,000 + 300 = 8,300 batteries
2. The worth of this batteries is computed by 8,300 × $45 =
$373,500.
3. Remember, that the days of supply in raw material
inventory is always the same to the “Flow time” for a battery in raw material
inventory.
At this point, we need to assume that the batteries are used
in the similar order when they reach the plant. So we need to reorder our
Little’s law formula to:
Flow time = Inventory/Throughput
Therefore, flow time = 8,000 batteries / (200 batteries/day) = 40
days
This represents a 40-day supply of inventory.
