Question 4

The weekly demand for a product, which is held in stock is always 90 units. When an order for new stock is placed, it is delivered almost instantaneously by an ordering cost of 50,000 is incurred. The product costs 3,000 per unit, and it costs 15 percent of this amount to hold a unit in stock for a year. Currently, orders are placed for 2000 units. There are 50 working weeks in a year and lead time is one week.

1. As a management science student, the MD of the company seeks your expert advice on ways in which to determine the economic order quantity, optimal order cycle time, re-order level and total annual inventory cost. Advise the MD, providing detailed explanation using your answer. Write your answer in a form of a report to the MD.

CR (10 marks)

b) Advise the MD about savings, if any, could be made by changing from current order quantity of GH 2000 units to the one obtained in (a) above. EV (10 marks)

c) Describe the order policy followed by the firm based on your calculations. CR (5marks)