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An office supply store open five days a week must determine the best inventory policy for boxes of copier paper. Weekly demand is nearly constant at 250 boxes. When orders are placed, the entire shipment arrives at once. The cost per box is $22, and the inventory holding cost is 30%. Orders are placed at a cost of $40 each, including preparation time and communication charges, and the lead time is two days. How often an order should be placed

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jepessoa

Answer:

orders should be placed every 11.15 ≈ 11 days

Explanation:

we need to determine the economic order quantity:

EOQ = √[(2 x S x D) / H]

  • S = order cost = $40
  • D = annual demand = 250 per week x 52 weeks = 13,000
  • H = annual holding cost per unit = $22 x 30% = $6.60

EOQ = √[(2 x $40 x 13,000) / $6.60] = 396.96 ≈ 397 boxes

total number of orders per year = 13,000 / 397 = 32.75 orders per year

number of days between orders = 365 / 32.75 = 11.145 days

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