Southwest airlines has an agreement to buy jet fuel from Exxon. The goal is to minimize total cost (i.e., ordering cost and holding cost). The annual demand for fuel is 2.273 million gallons. Exxon charges Southwest $3085 to process each order. Southwest airlines incurs a holding cost of $0.8 per gallon.
What is the optimal order quantity?
How often does Southwest need to place orders with Exxon?
What is the inventory level (re-order point) at which Southwest needs to place an order if the lead time for orders is 11 days?