Economic order quantity, effect of parameter changes (continuation of 20-16). Athletic Textiles (AT) manufactures the Galaxy jerseys that Fan Base (FB) sells to its customers. AT has recently installed computer software that enables its customers to conduct “one-stop” purchasing using state-of-the-art website technology. FB’s ordering cost per purchase order will be $30 using this new technology.
REQUIRED
1. Calculate the EOQ for the Galaxy jerseys using the revised ordering cost of $30 per purchase order. Assume all other data from Exercise 20-16 are the same. Comment on the result.
2. Suppose AT proposes to “assist” FB. AT will allow FB customers to order directly from the AT website. AT would ship directly to these customers. AT would pay $10 to FB for every Galaxy jersey purchased by one of FB’s customers. Comment qualitatively on how this offer would affect inventory management at FB. What factors should FB consider in deciding whether to accept AT’s proposal?