A lotion manufacturer\'s process requires use of particular oil at the rate of 5

Question

A lotion manufacturer's process requires use of particular oil at the rate of 500 barrels per week. The oil is purchased from a wholesaler at a price of $10.50 per barrel. Procurement lead time is 2 weeks; assume there are 52 working weeks per year. Storage cost is $0.50 per barrel per week. The lotion manufacturer's Operations Supervisor wishes to maintain a safety stock of 400 barrels. Current ordering policy is of 2000 barrels per order. What is the expected maximum inventory on hand? What is the expected minimum inventory level? What is the average inventory? What is the ROP (Reorder point)?

Explanation / Answer

max inventory = 2000

min inventory = 400

average inventory = 2000+400 / 2 = 1200

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