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You know from your prior experience that moving to lean manufacturing (or demand-based manufacturing) can generate not only profitability improvements but also improvements in asset requirements (inventory reduction). Based on this, you wanted to let the Global Supply Chain Manager and her purchasing department know about the kind of inventory savings that might be achievable.
WhereC = cost of issuing a new purchase order or cost of a changeover in the manufacturing plant;D = demand per period; andH = carrying cost of inventory
where Q = EOQ from the EOQ formula.
What conclusions can you reach about the impact on the company’s overall ROI when switching to demand-based, synchronous manufacturing?
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