Quarter-inch stainless-steel bolts are consumed in a factory at a fairly steady rate of 60 per week. The bolts cost the plant two cents each. It costs the plant $12 to initiate an order, and holding costs are based on an annual interest rate of 25 percent.
Now, however, suppose the minimum reorder interval is one month and all order cycles are placed on a power-of-two multiple of months (that is, one month, two months, four months, eight months, etc) in order to permit truck sharing with orders of other parts.
(a) What is the least-cost reorder interval under this restriction?
(b) How much does this add to the total cost?
(c) How is the e?ectiveness of powers-of-2 order intervals related to the result of the previous problem regarding the e?ect of demand forecasting errors?