A food processor uses approximately 28,000 glass jars a month for its fruit juice product. Because of storage limitations, a lot size (order quantity) of 4,000 jars has been used. The monthly holding cost is 18 percent of the jar’s cost of $1.00. The ordering cost is $60 per order. The company operates an average of 20 days a month, twelve months a year. The lead time is 6 working days. The product is used uniformly throughout the 20 days.
a) What is the reorder point and what is the time between orders?
b) The manager would prefer ordering every 4 days (5 times per month) but would have to justify any change in the order size from its current 4,000 order quantity. One possibility is to simplify and improve the order processing activity to reduce the ordering cost. From a cost perspective, assuming everything else remains the same, what ordering cost per order for ordering every 4 days would enable the manager to justify ordering every fourth day compared to its current 4,000 order quantity? Assume the ordering cost for the current strategy of 4,000 jars remains at $60.
c) If the manager were to use the EOQ strategy, what would the order quantity be? What is the inventory position immediately.