Question

A supplier to Toyota stamps out parts using a press. Changing a part type

requires the supplier to change the die on the press. This changeover currently takes four hours. The supplier estimates that each hour spent on the changeover costs $500. Demand for parts is 1,000 per month. Each part costs the supplier $200, and the supplier incurs an annual holding cost of 25%.

a. Determine the optimal production batch size for the supplier.

b. Toyota wants the supplier to reduce its batch size by a factor of 2; that is, if the

supplier currently produces Q parts per batch, Toyota would like them to produce Q/2

parts per batch. What should the supplier do in order to make this amount optimal for

him? (In other words, what setup time creates a scenario in which the optimal batch

size drops to 1/2 of its current level?)

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