Question: A domestic appliance manufacturer is evaluating its delivery system from the production plant to showrooms around the country. One item used in the transportation of large appliances is a prefabricated polystyrene-foam packing case. These are supplied by an outside contractor and have to be ordered well in advance. Over the last few years, annual output of large appliances at the production plant has been 4000 units a year. The cost of placing an order is estimated at £25. Traditionally, the company has charged 15 per cent of the purchase cost of any item as the stock holding cost. The supplier charges £7.50 for each packing case.
(a) Determine the optimum order quantity and the time between placing orders for the company.
(b) Describe the key assumptions that you have made to determine (a).
(c) Realistically what effect do these assumptions have on the method adopted in (a) to solve this problem?
(d) If the supply of packing cases had a variable lead time how would this affect your suggested solution?