Question: Litespeed Products buys 200 000 motors per year from a supplier

Litespeed Products buys 200,000 motors per year from a supplier that can fulfill orders within two days of receiving them. Litespeed transmits its orders to this supplier electronically so the lead time to receive orders is two days. Litespeed’s order cost is about $295 per order and its carrying cost is about $37 per motor per year. The firm maintains a safety stock of motors equal to six days usage. Assume a 365-day year.
a. What is Litespeed’s economic order quantity (EOQ) for the motors?
b. How large a safety stock (in units) of motors should Litespeed maintain?
c. What is Litespeed’s reorder point for motors?
d. If Litespeed has an opportunity to reduce either its order cost or its carrying cost by 10%, which of these would result in the lowest total cost at the associated new EOQ?

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  • CreatedMarch 26, 2015
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