Problem:
In a typical week, the ZYX Company uses 10 cartridges for its printers (all the same model). It estimates that the cost of placing each order (including shipment) amounts to $ 45 per order, and that the cost of keeping a cartridge in stock (including the cost of capital) is $1 per week. The office manager orders 30 cartridges when she sees that the stock on hand has reached 20 units. The order arrives after a week.
The supplier offers to take over management of the inventory of cartridges for XYZ. It will provide exactly the same service level (to the users inside the company) as before. (In other words, the supplier will rent a small space next to the company and keep sufficient inventory there to provide the same service level. ZYX would pay only for the cartridges that it uses.). In exchange, the supplier would charge $ 3.50 more per cartridge. Should XYZ accept the offer?