A hypermarket store sells a popular soft drink that has a constant annual demand
ID: 421145 • Letter: A
Question
A hypermarket store sells a popular soft drink that has a constant annual demand of 24,000 cases. While placing an order, the hypermarket incurs a cost of $25 per order and receives its ordered cases instantaneously. Holding costs are $4.80 per case per year. The hypermarket is open 6 days a week and 52 weeks a year. Identify the following features of the inventory policy. a. The optimal order quantity per order b. The optimal number of orders per year c. The time between the orders in days d. The minimum total annual inventory costs 1. eorder point if the supplier needs a lead time of nine days to supply the order instead of instantaneous deliveryExplanation / Answer
Following details have been provided :
Annual demand = D = 24,000 cases of soft drinks
Ordering cost = Co = $25
Annual inventory holding cost = Ch = $4.80
= Square root ( 2 x Co x D/ Ch )
= Square root ( 2 x 25 x 24000 / 4.8)
= 500
OPTIMAL ORDER QUANTITY = 500 CASES OF SOFT DIRNKS
= Annual demand / Optimal order quantity
=24000 / 500
= 48
OPTIMAL NUMBE ROF ORDERS PER YEAR = 48
= EOQ / annual demand x6 days/week x 52 weeks / year
= 500/24000x312
= 6.5 days
TIME BETWEEN ORDERS IN DAYS = 6.5 DAYS
= Ordering cost x Number of orders
= Ordering cost x annual demand / EOQ
= Co x D/EOQ
= 25 x 24000/ 500
= $ 1200
Annual inventory holding cost
= Annual unit inventory holding cost x Average inventory
= Ch x EOQ/ 2
= $4.8 x 500/2
= $1200
Therefore, minimum total annual inventory cost
= annual ordering cost + annual inventory holding cost
= $1200 + $1200
= $2400
MINIMUM TOTAL ANNUAL INVENTORY COST = $2400
= annual demand / Effective number of days in a year ( 6 days/ week and 5 weeks/ year)
= 24000/ 312
Reorder point
= Daily demand x Lead time
= 24000/312x9 days
= 692.30 ( 692 rounded to nearest whole number )
REORDER POINT = 692 CASES
OPTIMAL ORDER QUANTITY = 500 CASES OF SOFT DIRNKS
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