Stacey manages an accountancy firm in NYC and her staff drink a lot of coffee; the office use 5 kilograms of coffee grounds each day. Her office manager buys coffee from an organic supplier in Brooklyn who charge $7.50 per kilogram of coffee and she estimates it costs the firm $5.00 every time they place an order. The supplier guarantees that any order placed will arrive exactly 5 days later. The office manager wants to know when and in what quantity she should order the coffee for the office. Stacey estimates annual holding costs of $0.50 per kilogram of coffee per year. Assume there are always 365 days in a year.
(a) How many kilograms of coffee should Stacey tell her office manager to order each time to minimize the average cost to the company per year?
(b) How frequently should an order be placed?
(c) What is the reorder point?
(d) What does the reorder point represent?