You found that the optimal order quantity is achieved at the point at which inventory setup cost per unit of time equals inventory holding cost per unit of time. Knowing this, your employer, a manufacturer of office chairs, asks that you determine the optimal order quantity for two suppliers of coil springs.
Your manufacturing facility operates 50 weeks a year and requires a steady supply of 1000 coil springs per week. Supplier A charges $1 for each spring, and you resell them for $4 each. An inventory carrying charge of 25% is incurred.
In a two- to three-page APA formatted paper (not including the title and reference pages), provide the following:
Complete the table and calculate the optimal order quantity for Supplier A:
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Units
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Setup costs
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Inventory carrying cost
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Show equation used with all above values filled in
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Optimal order quantity of springs
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- Provide a similar table and calculate the optimal order quantity of springs for Supplier B. Supplier B offers a setup cost of $10. All other factors remain the same as Supplier A.
- The calculations assume that you are starting with a zero inventory balance. Discuss why zero inventory balance is or is not a desirable condition in most businesses. Be sure to include at least the three benefits of lower inventory carrying costs, having an inventory safety stock, and other potential benefits or risks.