Tom Wassink's irrigation shop uses 3,500 sprinkler heads during the course of a year, and this usage is relatively constant throughout the year. These sprinkler heads are purchased from a supplier 100 miles away for $9.50 each, and the lead time is 3 days. The holding cost per sprinkler heads per year is 8% of the unit cost and the ordering cost per order is $15.75. There are 365 working days per year.
a) What is the EOQ?
b) What is the annual inventory holding cost?
d) In minimizing cost, how many orders would be made each year?
d) What would be the annual ordering cost?
e) Given the EOQ, what is the total annual inventory cost (including purchase cost)?
f) What is the time between orders?
g) What is the ROP?
Upon hearing that Tom Wassink is considering producing the sprinkler heads in house, the vendor has notified Tom that the purchase price would drop from $9.50 per sprinkler heads to $9.00 per sprinkler heads if Tom will purchase the sprinkler heads in lots of 500. Lead times, however would increase to 4 days for this larger quantity.
a) What is the total annual inventory cost plus purchase cost if Tom buys the sprinkler heads in lots of 500 at $9.00 each?
b) If Tom does buy in lots of 500 brackets, what is the new ROP?