A computer-supply mail order house has the memory chip in inventory that it sells to customers around country. A Japanese manufacturer supplies the item using airfreight. It has following characteristics: Average annual demand = 3,200 Replenishment lead time = 1.5 weeks Carrying cost = 15% per year Purchase price, delivered = $55 per unit Procurement ordering cost = $35 per order
a. Design the reorder point technique of control for this item.
b. What are annual ordering and annual carrying costs if your design is employed?
c. Assume that the lead time stretches to three weeks, so that the ROP>Q*. What adjustments would you recommend making in control policy?