A beverage company distributes a drink that has a constant annual demand rate of 5,000 cases. Ordering costs are $80 per order and inventory holding costs are estimated at $5.00 per case per year.
What is the maximum number of cases that are held in inventory in a given ordering cycle using the EOQ? (I went through a long calculation for this one, and ended up with an answer of zero, which can't be correct).
Assume that the lead time for ordering the energy drink is 10 days. What is the Reorder Point? Verbally, interpret the meaning of this Reorder Point. You may assume there are 250 operating days in a year.
A newly hired inventory manager believes that by changing the order quantity from the EOQ (I calculated this to be 400) to 300 cases per order, the beverage company can save money on its holding/carrying costs and therefore lower its annual total inventory costs. Do you agree with this inventory strategy? Justify your answer. (Compare the ordering and carrying costs using the EOQ amount versus the current total inventory cost using 300 cases.)