The mission of the Naval Ophthalmic Support and Training Activity (NOSTRA) is to manufacture and supply eyewear to the entire Department of Defense. The two largest inventory line items that NOSTRA carries are lenses and spectacle frames. An NPS student thesis concluded that "NOSTRA could potentially achieve efficiencies by categorizing its inventory and utilizing a 2-bin Kanban system to manage when inventory is needed and how much inventory is needed."
NOSTRA leadership maintains a service level of at least 85% (z = 1.0364).
After performing an ABC calculation, the student found that the 5A LARGE STANDARD FRAME [BLK, 54, 20, 145SKL] is among the items with greatest budget impact. It has the following demand and inventory cost characteristics:
Demand:
mean = 29822/year
standard deviation = 892
Inventory costs:
ordering = $40
holding = $0.75/unit-year
Lead time = 1 week
Question
The supplier delivers in lots of 100 frames. What should be the bin size for this item?