Question: Demand for disposable razors at Chevere Drugs Store (CDS) averages seven packages per day. The razors cost CDS $0.80 per package and sell for $1.49. CDS uses a 15% annual holding cost rate, based on the unit cost, and estimated the cost to place an order at $15. CDS is open 365 days a year and requires a safety stock of 50 packages. The lead time for delivery is four days. Determine the following:
- The optimal inventory policy (order quantity and reorder point) for the disposable razors.
- The number of days between orders (cycle time).
- The total annual inventory cost (holding, ordering, and procurement) and the projected annual net profit of this policy.
- What assumptions did you make regarding demand in solving this problem?
- Would your answers to part a change if CDS requires its customers to purchase razors in dozens?