David operates a small network of organic grocery stores that he services from a central warehouse....

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David operates a small network of organic grocery stores that he services from a central warehouse. David was contacted by his supplier who asked whether he would consider changing his order quantity on a line of frozen vegetables. Citing high costs of servicing David's orders (mainly because the supplier paid the transportation), the supplier offered to negotiate with David to change (increase) his order quantity. David thought the wholesaler was making about 20% profit on the frozen vegetables and he guessed that the wholesaler's holding costs were about 21% of its unit costs. David looked at his own records and compiled the following: David Annual Demand (D) Order cost per lot (S) Unit cost (C) Holding cost factor (k) Supplier 130,000 $ 125. $ 6.00 35% Order cost per lot (S) Unit cost (C) Holding cost factor (k) Complete the tables below. $ 400 $ 5.00 21% David Orders Independently Economic Quantity Ordered by David David's ordering cost David's holding cost David's total cost Supplier's order cost Supplier's holding cost Supplier's total cost Total cost across both parties $ SA Orders optimize joint costs Quantity that minimizes total cost David's ordering cost David's holding cost David's total cost Supplier's order cost Supplier's holding cost Supplier's total cost Total cost across both parties $ $ What exactly are the supply chain dollar savings from ordering at a quantity that optimizes supply chain costs? What is the minimum amount that David could consider accepting to change his Order Quantity? David operates a small network of organic grocery stores that he services from a central warehouse. David was contacted by his supplier who asked whether he would consider changing his order quantity on a line of frozen vegetables. Citing high costs of servicing David's orders (mainly because the supplier paid the transportation), the supplier offered to negotiate with David to change (increase) his order quantity. David thought the wholesaler was making about 20% profit on the frozen vegetables and he guessed that the wholesaler's holding costs were about 21% of its unit costs. David looked at his own records and compiled the following: David Annual Demand (D) Order cost per lot (S) Unit cost (C) Holding cost factor (k) Supplier 130,000 $ 125. $ 6.00 35% Order cost per lot (S) Unit cost (C) Holding cost factor (k) Complete the tables below. $ 400 $ 5.00 21% David Orders Independently Economic Quantity Ordered by David David's ordering cost David's holding cost David's total cost Supplier's order cost Supplier's holding cost Supplier's total cost Total cost across both parties $ SA Orders optimize joint costs Quantity that minimizes total cost David's ordering cost David's holding cost David's total cost Supplier's order cost Supplier's holding cost Supplier's total cost Total cost across both parties $ $ What exactly are the supply chain dollar savings from ordering at a quantity that optimizes supply chain costs? What is the minimum amount that David could consider accepting to change his Order Quantity?

Answer rating: 100% (QA)

To solve this problem we need to calculate the economic order quantity EOQ and the associated costs for David ordering independently and for the order ... View the full answer