• Target – Two popular coffee brands sold at Target stores are SB and EO – These coffees are shipped to Target’s DeKalb distribution center (DC) from their local warehouses – Cost of 12-oz coffees are $10 for SB coffee and $6 for EO coffee
• Suppose – Weekly demands at DeKalb DC are 300 packages for SB coffee and 500 packages for EO coffee
• Assume DeKalb DC operates 52 weeks per year – Fixed cost of ordering any coffee is $1,000 per order (including transportation cost) – Additional ordering costs that depend on coffee brand are $300 for SB coffee and $300 for EO coffee – Inventory holding cost per package per year is 30% of the cost of coffee – Assume that there is no limit on truck capacity
1) What is the optimum lot size (economic order quantity) of each coffee if DeKalb DC replenishes each coffee brand jointly?
2) What is the cycle inventory of each coffee at DeKalb DC?
3) What is the annual ordering cost of 2 coffees at DeKalb DC?
4) What is the annual holding cost of each coffee at DeKalb DC?