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Economic Order Quantity

An energy company orders railcar loads of coal at a rate of 62,500 tons per year. Delivery lead time is variable, but has averaged 5 days. The annual cost to hold inventory is $200 per ton and each order that is placed with the supplier costs $2,500 per ton. Since the usage of coal and arrival of the railcar are both variable, the plant manager has set a safety stock level of 5,000 tons.

a) What is the economic order quantity (in metric tons)?

b) What is the total holding cost for the year?

c) What is the total ordering cost for the year?

d) The next order should be placed when coal inventory drops to how many tons? (assume 365 days in one year for converting annual demand to daily demand)

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Operation Management, Management Studies

Category:- Operation Management
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