Question: A firm is faced with the attractive situation in which

A firm is faced with the attractive situation in which it can obtain immediate delivery of an item it stocks for retail sale. The firm has therefore not bothered to order the item in any systematic way. Recently, however, profits have been squeezed due to increasing competitive pressures, and the firm has retained a management consultant to study its inventory management. The consultant has determined that the various costs associated with making an order for the item stocked are approximately $30 per order. She has also determined that the costs of carrying the item in inventory amount to approximately $20 per unit per year (primarily direct storage costs and foregone profit on investment in inventory). Demand for the item is reasonably constant over time, and the forecast is for 19,200 units per year. When an order is placed for the item, the entire order is immediately delivered to the firm by the supplier. The firm operates 6 days a week plus a
few Sundays, or approximately 320 days per year. Determine the following:
a. The optimal order quantity per order
b. The total annual inventory costs
c. The optimal number of orders to place per year
d. The number of operating days between orders, based on the optimal number of orders

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  • CreatedJuly 17, 2014
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