Question

You operate a production facility that faces the following forecasted seasonal demand pattern for Widget-A: 650 units/month for the first four months of the year, 1000 units/month for the next four, and 1500 units/month for the last four months of the year.

Suppose that you decide to produce at a constant rate of 1050 units per month throughout the year. You have zero inventory at the beginning of the year. Plot the resulting inventory level in your company's warehouse, as a function of time, on the graph. To simplify matters, assume that demand and production occur at a constant rate and not in discrete quantities.

What is the maximum inventory level during the year?

What is the average length of time a Widget-A will spend in your company's warehouse over the year (in months)?

Answer 1

We have,

Ending inventory of Month 1=Beginning inventory+Total production -Demand

=0+1050-650=400

Beginning inventory of Month 2 =Ending inventory of Month 1

Similarly for the rest of the months.

The ending inventory(inventory level) is plotted on the Y-axis with period on the x-axis

Calculations are as shown below :

Maximum inventory level =1800 widgets

The ending inventory becomes zero at the end of month 12 .

Average length of time a widget spends in the warehouse =the time taken for the ending inventory value to become zero=12 months