2. Seattle Electronics Inc. (SEI), a retailer of electronic goods and products sells three models of computers, the Litepro (L), the Medpro (M) and the Heavypro (H) which are all replenished through the same supplier. Annual demands for the three products are 12,000 for Litepro, 1,000 for Medpro and 25 for Heavypro. Each unit of Litepro costs $500, Medpro $750 and finally Heavypro $1,000. The shipping cost of $4,000 is incurred each time an order is delivered. For each model ordered and delivered, an additional fixed cost of $1,000 is incurred for receiving and storage. SEI uses an annual holding cost rate of 20%. SEI is considering different strategies regarding the replenishment of these three models.
a) Independent Ordering: Find the optimal order quantity and the average annual total cost associated with for all three items if each model is ordered and delivered independently which means a separate truck delivers each model.
b) Joint Ordering: Find the optimal order quantities and the average annual total cost if all three models are ordered jointly (this means all models are ordered at the same time and thus, every order placed contains quantities of each of the three models).
c) Mixed Strategy: In the mixed strategy, 2 of the items are ordered jointly and one is ordered independently. For instance Litepro and Medpro can be ordered jointly and Heavypro independently. There will be 3 different combinations of this strategy that needs to be considered. For all these possible strategies, find the optimal order quantities and then the average total annual costs.
d) Based on your analysis above, identify the strategy that yields the minimum total annual cost.