SPL Idols manufactures idols and allied products. It requires casts to manufacture its products because it does not produce any cast itself. After make-or-buy analysis, it was preferred to buy casts....

SPL Idols manufactures idols and allied products. It requires casts to manufacture its products because it does not produce any cast itself. After make-or-buy analysis, it was preferred to buy casts. So it buys casts from a foundry. The castings are used throughout the year. In a year, 50,000 castings are bought at a rate of Rs 900 per cast. The holding cost is a bit high because adequate temperature needs to be maintained for the castings. The holding cost is thus Rs 350 per casting. The order cost is Rs 900 per order. The lead time is 6 days but sometimes it goes up to even 10 days. On the basis of the experience, it has been found that 70% of the orders involve 6 days lead time, 20% of the deliveries involve 8 days lead time and the rest 10% of the deliveries take 10 days in transporting castings from foundry to its own plant. The firm assumes 15% risk in terms of out-of-stock. Again, in a highly competitive market, the firm tries to reduce the ordering cost and the carrying cost, both. It reconstructs its god own to lower the carrying cost. The carrying cost comes down to Rs 250 per unit. It also re-engineers the ordering mechanism and is able to reduce the ordering cost to Rs 850.

1. Find out the new EOQ. How much is it different from the old EOQ?

 2. Considering the stock-out cost, what will be the safely level of stock and the reorder point?