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Lula Cafe, a specialty coffeehouse in Chicago, sells Mexican coffee at a fairly steady rate of 780 pounds annually. The beans are purchased from a supplier in Chiapas, Mexico for $4.20 per pound. Lula Café estimates that it costs $35 in paperwork and transportation to place and get an order for the coffee, and holding costs are based on a 25% annual interest rate.

a) Determine the optimal order quantity for Mexican coffee, in pounds

b) What is the time between placement of orders, in days? (Lula Cafe operates 24/7)

c) What is the annual cost of holding and ordering Mexican coffee for Lula Café ?

d) If replenishment lead time is 12 days, determine the reorder level based on the on-hand inventory.

e) If the coffee supplier in Chiapas, Mexico only takes orders by number of 50-lbs bags, how many bags you recommend to order and what will be the impact of this constraint on the total cost for Lula Cafe?

Operation Management, Management Studies

  • Category:- Operation Management
  • Reference No.:- M92295966

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