Question: Dexter Inc is a small distributor of specialized industrial tools located in Cahir, County Tipperary, Ireland. They work with hundreds of manufacturers that provide them with products that they in turn sell to their thousands of customers. One item they sell is the Left Handed Monkey Wrench, or SKU WML999 that is manufactured by Wilson Worldwide. The WML999 is a steady seller for Dexter Inc. They have been selling them for several decades and the demand has been remarkably constant and stable with no variation, trend or seasonality.
The average demand for Left Handed Monkey Wrenches is 260 units per year. The cost to Dexter Inc for the Left Handed Monkey Wrench is 72 $/item and they sell them for 112 $/item to their customers. It costs just 5 $/order for Dexter Inc. to place an order to Wilson Worldwide and the lead time is 1 week. Dexter's annual inventory holding cost is 20% and for this problem assume there are 52 weeks per year.
Wilson Worldwide has realized that its new policy of ordering in cases only might have caused its customers (namely Dexter Inc.) problems. It has decided to modify its policy once again. Instead of requiring orders to be in cases of 25 units, they will now allow orders in packs of 5 units. There are five packs in each case, obviously. This means that Left Handed Monkey Wrenches can be ordered in packs of 5 or in cases of 25. Unfortunately, it costs Wilson Worldwide time and money to break up cases into separate packs, so they will increase the cost per order from 5 $/order to 6 $/order if Dexter Inc. orders in PACK versus CASE sizes. So, if Dexter Inc. orders, say, 3 packs, it will be charged 6 $/order. However, if it orders 1 case it will only be charged 5 $/order.
Based on this new information, which of the following statements are true? You are allowed to select more than one of the statments.
a. Dexter Inc.'s new Economic Order Quantity, Q*, for Left Handed Monkey Wrenches should be 1 pack
b. Dexter Inc.'s new Economic Order Quantity, Q*, for Left Handed Monkey Wrenches should be 2 packs
c. Dexter Inc.'s new Economic Order Quantity, Q*, for Left Handed Monkey Wrenches should be 3 packs
d. Dexter Inc.'s new Economic Order Quantity, Q*, for Left Handed Monkey Wrenches should be 4 packs
e. Dexter Inc.'s new Economic Order Quantity, Q*, for Left Handed Monkey Wrenches should be 1 case
f. Dexter Inc.'s new Economic Order Quantity, Q*, for Left Handed Monkey Wrenches should be greater than 1 case
g. Reducing the leadtime would lower the pipeline inventory.
h. Reducing the leadtime would increase the total costs (purchase, order, holding) for Dexter Inc.
i. None of these statements are true