Question description

 

 

 

Optimal Order Quantities

 

In your studies this week, 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. The set up charge is $20 per order. An inventory carrying charge of 25% is incurred.

1. Complete the table and calculate the optimal order quantity for Supplier A.

Units

Setup costs

Inventory carrying cost

Show equation used with all above values filled in

Optimal order quantity of springs

1. Provide a similar table and calculate the optimal order quantity of springs for Supplier B. Supplier B charges $2 for each spring. The set up charge is $10 per order. All other variables remain the same as with Supplier A.
2. 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.

The Optimal Order Quantities paper:

• Must be two to three double-spaced pages in length (not including title and references pages) and formatted according to APA style