Customers at Joe’s Office Supply Store demand an average of 500 desks per month. Each time an order is placed, an ordering cost of $300 is incurred. The annual holding cost for a single desk is 25% of the $200 cost of a desk. One week elapses between the placement of an order and the arrival of the order (i.e. the lead time is one week). In parts (a)–(d), assume that no shortages are allowed.
Each time an order is placed, how many desks should be ordered?
How many orders should be placed each year?
Determine the total annual costs (holding cost + ordering cost) of meeting the customers’ demands for desks.
Determine the reorder point. If the lead time were five weeks, what would be the reorder point? (Assume that there are 52 weeks in a year and 364 working days)
How would the answers to parts (a) and (b) change if shortages were allowed and a cost of $80 is incurred if Joe’s is short one desk for one year? What is the maximum number of backorders? What is the maximum inventory? How many days after receiving an order does Joe’s run out of inventory? How long is Joe’s without inventory per cycle?
Which economic order policy is recommended: economic order with backorder or without backorder? Why?