Question: A bicycle manufacturer produces 75 bicycles per week. It buys the tires from a supplier at a cost of $20 per tire, and it costs the company $120 to place an order. Holding costs are based on purchasing costs and a weekly interest rate of 2%.
(a) Determine the optimal number of tires for the company to order at one time, and the time between orders in weeks. Keep in mind that a bike uses two tires.
(b) What are the yearly holding and fixed order costs for this item? (Assume 50 working weeks in a year). Suppose the CEO asks you to place the tire orders every month, two months, or four months, to coordinate with other shipments. Assume one month has four weeks.
(c) What is the best order interval under this restriction?
(d) How much does this add to the total cost compared to the optimal order cycle?