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Annual demand of vitamins is 100,000 bottles at the Nutrition Store (NS). Currently NS purchases vitamins from General Health (GH) for $10 (capital cost) a bottle with a lot size of 10,000. The fixed ordering cost is $1,000. The inventory holding cost is 20% of the capital cost. GH’s production cost is $5 per bottle of vitamins. The inventory holding cost is $1 per bottle per year. GH incurs an order filling cost of $3,000 each time it ships vitamins to NS.

a. What is the annual inventory cost (holding + ordering) at NS?

b. What is the annual inventory cost (holding + order filling) at GH?

c. If GH offers a price of $9.94 for order quantity of 20,000 and above and NS changes its lot size to 20,000, what is the savings in total annual inventory cost at the two companies?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92277190

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