Deterministic Lot Sizing - Adjusting EOQ
1.) Per Norstrom supplies computer systems to a warehouse in Rotterdam. He sells 16 systems a week. The cost of an average system is $5,000, while order administration costs and delivery from Malaysia cost $1000. The lead time is around 4 weeks and holding cost are around 16 per cent a year. What policy would you recommend for Per?
2.) Assume that the classical economic order quantity model in chapter 3 suggests Qo= 25 for a certain item. However, for some practical reasons the order quantity has to be a multiple of 10. What is then the best order quantity? Explain why.
3.) (a) Arcadia Windings is concerned about its stocks of copper cable. The demand for this is 8,000 metres a week, with a cost of $4 a metre. Each order cost $350 for administration and $550 for delivery, and has a lead time of 8 weeks. Holding costs are about 25 per cent of value held a year, and any shortages would disrupt production and give very high costs. What is the best inventory policy for the cable? How does this compare with the current policy of placing a regular order every week?
3.) (b) How would this analysis differ if the company wanted to maximize profit rather than minimize cost? What is the gross profit if the company sells cable for $8 a metre?