Little Law's

Little’s Law

(Airline): Consider the baggage check of a small airline. Check-in data indicate that from 9am to 10am, 255 passengers checked in. Moreover, based on counting the number of passengers waiting in line, airport management found that the average number of passengers waiting for check in was 35. How long did the average passenger have to wait in line?

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Solution:

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I=Flow Rate * Flow Time

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I= 35 minutes

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Flow Rate: 255 passengers/60 minutes = 4.25 passengers per minute

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Flow Time: 35 minutes/4.25 passengers per minute = 8.24 minutes

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The average passenger waited 8.24 minutes in line.

(Inventory Cost): A manufacturing company producing medical devices reported a $60.000.000 in sales over the last year. At the end of the same year, the company had $20.000.000 worth of inventory of ready-to-ship devices.

a) Assuming that units in inventory are valued (based on COGS!) at $1.000 and are sold for $2.000 per unit, how fast does the company turn its inventory? The company uses a 25% per year cost of inventory. That is, for the hypothetical case that one unit of inventory would sit exactly one year in inventory, the company charges its operations division a $250 inventory cost.

b) What - in absolute terms – is the per unit inventory cost for a product that costs $1.000?

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Solution:

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Flow rate (FR) = Cost of Goods Sold (COGS)

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Inventory (I) = Cost of items on hand (average inventory)...