A large scale pharmaceutical manufacturing company, Ask an Expert

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A large scale pharmaceutical manufacturing company estimates, based on a shipping fee of $1000 per order, that they can optimally balance inventory holding costs and shipping costs for one of their frequently used chemicals if they receive shipments of this chemical at an average rate of 4.5 times per year. The annual demand is 6500 tons. Suppose that they wish to instead receive shipments every month in order to reduce the working capital requirements of holding inventory.

(a) What shipping fee should they negotiate with the supplier?

(b) Based on this new shipping fee, what would be the reduction in annual holding cost as compared to their prior situation? Assume that they operate optimally.

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Operation Management, Management Studies

Category:- Operation Management
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