The company Mid Way imports mineral water from a producer near Puy de Dme in France called

The company Mid Way imports mineral water from a producer near Puy de Dôme in France called CPD and sells it to retailers in Quebec. Demand from retailers in Quebec is very steady at 9,000 boxes per year. It takes exactly 1 month for a shipment to arrive from France. CPD charges Mid Way $80 per box of water ordered. For each order, it also charges a fixed fee $600 for order preparation and shipping. Mid Way rents a state-of-the art warehouse to keep the water in ideal condition. The rental cost covers space and electricity, which is $10 per box per year. It also costs Mid Way 10% of the purchasing cost per year in insurance fees. Assume that 1 month = 4 weeks, 1 week = 5 days, and 1 year = 50 weeks. 

a)Currently, Mid Way orders at 600 boxes each time. To avoid customer backorder, what Inventory level Mid Way should set in its system to trigger a replenishment order? (Hint: the reorder point) 

b)The CPD mineral water has a good reputation in Quebec and customers show willingness to wait when there is a stock out. The accountant estimates that it will cost Mid Way $30 (in the lost of future revenues and extra shipping costs) to backorder one box of water for one year. Suppose Mid Way can backorder customers now. How often should Mid Way place an order with CPD (the time interval between two consecutive orders)? What is the maximum amount of time a box of water could stay in Mid Way's warehouse?

c)  In improving customer satisfaction, the producer CPD has decided to offer quantity discounts to Mid Way on the premise that backordering is no longer allowed. Instead of charging $80 per box, CPD is proposing the following pricing schemes: For the first 1000 units (or less) in an order, the price per box is $80. For the part of the order that is greater than 1000 units, the price per box is $75. What is Mid Way’s total annual cost if it orders 1500 units every time?

Answer rating: 100% (QA)

a To determine the reorder point we need to calculate the average demand during the lead time the time between placing an order and receiving it and a... View the full answer