Most companies develop their inventory stocking strategy in an intuitive way. MBA students are much more structured in their thinking. GHI Company has requested an MBA student to help with establishing their inventory policy. GHI has a single store and they like to begin each week with 300 bags of concrete in inventory. This stock is completely depleted each week, so they reorder and receive stock immediately.
• Carry cost per bag of concrete is $41 per year
• Fixed order cost per order is $95
a) What is the total carrying cost?
b) What is the restocking cost?
c) Should GHI change its policy and increase or decrease its order size? What is it in your calculations that would cause you to say this?
d) What would be your recommended inventory policy for GHI Company and why?