Handout – Inventory Management
1. Katadyn purchases 8,000 filters each year as components of their portable hiking water filters. The unit cost of each filter is $10, and the cost of carrying one filter in inventory for a year is $3. Ordering cost is $30 per order.
What are (a) the optimal order quantity, (b) the expected number of orders placed each year, and (c) the expected time between orders? Assume that Katadyn operates on a 200-day working year.
2. Publix sells whole grain pasta for which the annual demand is 5,000 boxes. At the moment, it is paying $6.40 for each box; carrying cost is 25% of the unit cost; ordering costs are $25. A new supplier has offered to sell the same item for $6.00 if Publix buys at least 3,000 boxes per order. Should Publix stick with the old supplier, or take advantage of the new quantity discount?